Question

True or False?

1) If Country A is absolutely better at producing everything than Country B, then there is no incentive for Country A to engage in trade with Country B.

2) If Tom has a comparative advantage in producing corn then he must also have an absolute advantage in producing corn.

3) If Joe can produce a good at a lower opportunity cost than Fred, then Joe must have an absolute advantage in producing this good.

4) Consider the circular flow diagram. Households supply the factors of production and demand goods and services.

5) Labor and land are both examples of factors of production.

6) The price of apples in a given week is an example of an economic variable.

7) In Country A a worker can produce either 6 bushels of corn or 18 pounds of tomatoes in one day. In Country B a worker can produce either 4 bushels of corn or 16 pounds of tomatoes in one day. Country A has an absolute advantage in corn production.

8) In Country A a worker can produce either 6 bushels of corn or 18 pounds of tomatoes in one day. In Country B a worker can produce either 4 bushels of corn or 16 pounds of tomatoes in one day. Country B has a comparative advantage in corn production.

9) A production possibilities frontier identifies the relationship between the quantity of a good produced and the cost of producing that good.

10) In the circular flow model, people earn income and spend it on goods and services. The amount spent on the goods and services becomes profit for the firm.

Answer 1

1) False
(It may be absolutely better but trade depends on comparative advantage.)

2) False
(Absolute advantage is not necessary for having a comparative advantage.)

3) False
(Opportunity cost and absolute advantage are not related.)

4) True
(Factors of production are supplied by households and they demand goods and services.)

5) True
(As they are both used to produce goods so they are examples of factors of production.)

(Note: Post 4 T/F questions at a time.)