PRACTICE TEST FOR CHAPTER 3

1. Regan grows flowers and makes ceramic vases. Jayson also grows flowers and makes ceramic vases, but Regan is better at producing both goods. In this case, trade could a. benefit both Jayson and Regan. b. benefit Jayson, but not Regan. c. benefit Regan, but not Jayson. d. benefit neither Jayson nor Regan. 2. The most obvious benefit of specialization and trade is that they allow us to a. work more hours per week than we otherwise would be able to work. b. consume more goods than we otherwise would be able to consume. c. spend more money on goods that are beneficial to society, and less money on goods that are harmful to society. d. consume more goods by forcing people in other countries to consume fewer goods.

Figure 3-1 Panel (a) couches Panel (b) couches chairs

chairs

3. Refer to Figure 3-1. The rate of tradeoff between producing chairs and producing couches depends on how many chairs and couches are being produced in a. Panel (a). b. Panel (b). c. both Panel (a) and Panel (b). d. neither Panel (a) nor Panel (b).

4. The opportunity cost of an item is a. the number of hours that one must work in order to buy one unit of the item. b. what you give up to get that item. c. always less than the dollar value of the item. d. always greater than the cost of producing the item. 5. If Iowa’s opportunity cost of corn is lower than Oklahoma’s opportunity cost of corn, then a. Iowa has a comparative advantage in the production of corn. b. Iowa has an absolute advantage in the production of corn. c. Iowa should import corn from Oklahoma. d. Oklahoma should produce just enough corn to satisfy its own residents’ demands. 6. Which of the following statements is not correct? a. Trade allows for specialization. b. Trade has the potential to benefit all nations. c. Trade allows nations to consume outside of their production