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Exam 2: Choice in a World of Scarcity

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Question 31

True/False

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Specialization in its comparative advantage and trading withother nations benefits a country in terms of its total output, butnot individuals when it comes to their wages.

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Question 32

Multiple Choice

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Workers in high-productivity countries fear trade because theythink they cannot compete with workers in low-productivitycountries. Workers in low-productivity countries fear tradebecause they think they cannot compete with workers in high-productivity countries. Which set of fears is justified?

A) The fears of workers in high-productivity countries are justified, but the fears of workers in low-productivity countries
Are not.
B) The fears of workers in low-productivity countries are justified, but the fears of workers in high-productivity countries
Are not.
C) Both sets of fears are justified.
D) Neither set of fears is justified.

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Question 33

Multiple Choice

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Division of knowledge, as discussed in the text, increaseseconomic prosperity because: I. Each person can develop extensive knowledge about a singleactivity II.The human brain's capacity to know everything about allproductive activities is limited III. Specialized knowledge increases productivity, whichincreases total output.

A producer has a comparative advantage over other producersif his production of the good involves:

Evidence from history shows that when the volume of tradeexpands, the result is prosperity.

Why is specialization so advantageous to trade? I. Through specialization, people and firms can achieveeconomies of scale II.Through specialization, people and firms can use specializedmachinery and techniques III. Trade exists only between people and firms that havecomplete specialization in the goods they are best at producing.

According to the textbook, the reason why Martha Stewart doesnot do her own ironing is that:

Trade makes people better off only when they all have the samepreferences.

Which of the following statements is TRUE? I. If a country does not trade, its knowledge is approximatelyequal to that used by one brain II.The basic idea of trade is to buy the things that would costyou a lot to make, and sell the things that you can make at a lowopportunity cost III. Trade leads to specialization, which in turn increases inproductivity.

Trade increases competition for domestic producers and resultsin lower prices of domestic goods.

Adam Smith said, "It is the maxim of every prudent master of afamily never to attempt to make at home what it will cost himmore to make than to buy. The tailor does not attempt to makehis own shoes, but buys them of the shoemaker. The shoemakerdoes not attempt to make his own clothes, but employs a tailor."Which of the following concepts best illustrates what Smithwanted to convey in this statement?

The theory of comparative advantage is:

Traders should specialize in the good in which:

Suppose the United States is more productive than China atproducing both T-shirts and cell phones. The theory ofcomparative advantage suggests that consumption in bothcountries will:

Who wrote, "It is the maxim of every prudent master of afamily never to attempt to make at home what it will cost himmore to make than to buy"?

The human brain has no limits, so the division of knowledgedecreases the total knowledge in society.

Which of the following is NOT true regarding the productionpossibilities frontier (PPF) ?

Trade refers to the exchange of goods and services between atleast two different nations.

As trade becomes more widespread, specialization ______,which in turn ______ productivity.

With 24 units of labor and no trade Brazil produces andconsumes eight units of sugar cane and two iPods. Sugar canecosts $50/unit, and iPods cost $200. After specialization andtrade, Brazil consumes 8 units of sugar cane and four iPods.What are wages in Brazil?