Question

91. While comparative advantage is the biggest reason many nations engage in trade, two other important reasons are

a.	economies of scale and increased competition.
b.	economies of scale and decreased competition.
c.	increased competition and increased production costs.
d.	increased production costs and access to smaller markets.
e.	decreased competition and access to smaller markets.

Use the following scenario to answer the following question:

Rosa and Dirk produce basketballs and footballs. Rosa can produce six basketballs per hour or two footballs per hour. Dirk can produce three basketballs per hour or four footballs per hour.

76. Based on the scenario, which of the following is true?

a.	Rosa has both an absolute and a comparative advantage in basketball production.
b.	Rosa has both an absolute and a comparative advantage in football production.
c.	Rosa has neither an absolute nor a comparative advantage in basketball production.
d.	Rosa has neither an absolute nor a comparative advantage in football production.
e.	Dirk has both an absolute and a comparative advantage in basketball production.

121. When a country decides to begin importing a good that they already produce domestically, then there will be an increase in ________ and the market price will ________.

a.	supply; increase	d.	demand; increase
b.	supply; decrease	e.	supply and demand; decrease
c.	demand; decrease

The following graph depicts the market for a particular good in Dorne. Dorne was importing the good under free trade and then decided to impose a tariff. Use the graph to answer the following questions:

   13.   What is the value of the tariff?

a.	2 percent	d.	$3
b.	$5	e.	25 percent
c.	$2

148. How much revenue does the government earn from the tariff?

a.	$100	d.	$1,320
b.	$600	e.	$40
c.	$220

52. If a society’s consumption possibilities are identical to its production possibilities, that society

has a(n)

a.	closed economy.
b.	open economy.
c.	one-person economy.
d.	absolute advantage in both goods and services.
e.	free trade policy.

Answer 1

91. Because of specialization, each country has to face lesser competition and enjoys economies of scale while producing the good the country has comparative advantage in. b is correct.

76. Opportunity cost of producing one basketball for Rosa is 1/3 footballs and for Dirk it is 4/3 footballs. Rosa has comparative advantage in producing basketballs. Rosa can produce 6 basketballs and Dirk can produce 3 basketballs in the same period of time. Therefore Rosa has absolute advantage in producing basketballs. a is correct.

121. When a country begins to import a good it already produces domestically, this increases the supply of the good in the domestic market and decreases its price. b is correct.