Econ 102 Spring 2004 Practice Questions 1 I. Concepts

Econ 102
Spring 2004
Practice Questions 1
I. Concepts:

Opportunity cost
Production Possibilities Frontiers (PPF)
Absolute advantage
Comparative advantage
II. Questions:
P1.The resource cost to produce fish and oil are listed below.
Fish Oil
Britain 30 10
Norway 60 30
Notice that the numbers in the table represent units of resource required to produce one
ton of either fish or oil. For instance, Britain requires 30 units of resource to produce 1
ton of fish whereas Norway requires 60 units of resource to produce 1 ton of fish. Use the
information in the table to answer the following questions.
1. Assume that each country has resources fixed at 120 units during the given time
period. Fill in the table below with the maximum amount of fish or oil that Britain
and Norway can produce from these resources.
Fish Oil
Britain
Norway
2. What is the opportunity cost of producing 1 ton of fish in Britain?

3. What is the opportunity cost of producing 1 ton of fish in Norway?
4. Which country has an absolute advantage in the production of fish?
5. Which country has a comparative advantage in the production of fish?
6. Assume each country specializes according to its comparative advantage. If the
country with the comparative advantage in fish produces 1 more ton of fish and
the country without the comparative advantage in fish produces 1 less ton of fish,
what will happen to total world production of oil?
P2. In the next figure, assume that the economy is operating at point A. What is the
opportunity cost of moving to B?
a. About 20 bushels of wheat.

b. Infinite, B cannot be produced at any cost.
c. 0.
d. About 2 bushels of soybeans.
e. About 1 bushel of wheat.
wheat
30 B
10
A
Soybeans
20
P3. Use the figure below to answer the following question. Assume that the Canadian
agricultural land is used either to raise cattle for beef or to grow wheat. The figure below
represents the production possibility frontier for beef and wheat. Determine the
opportunity cost of each pound of beef between points F and G.
Pounds of
Beef F
2
G
1.75
P4. Which of the following items

5 will
7 not affect an economy’s
BushelsPPF?
of
Wheat
a. The development of a better fertilizer.
b. Growth in the labor force.
c. A change in consumers’ preferences.
d. The development of a more productive method of steel production.
P5. The law of increasing opportunity cost causes the PPF to have a
a. Bowed in toward the origin shape.

b. Bowed out from the origin shape.
c. Linear shape (constant slope).
d. All of the above are possible.
e. None of the above.
P6. The PPF of a country producing wheat and barley is bowed out from the origin. The
shape of this PPF implies that
a. Some resources are better suited for producing wheat than for producing barley.
b. The opportunity cost of producing more wheat falls as wheat production rises.
c. The farmer’s technology is not subject to the principle of increasing costs.
d. The opportunity cost of producing wheat is constant.
P7. The law of comparative advantage explains why
a. Advanced nations will not trade with less-developed countries.

b. An advance nation will not trade with other countries.
c. Less-developed countries only trade among themselves.
d. Nations trade with each other, regardless of their relative levels of economic
development.
e. Nations erect trade barriers.
P8. Sarah and James are siblings. Their parents want 12 windows on the house washed
and the 25 square yards of leaves raked. Sarah and James estimate their output as shown
in the following table.
Windows per hour Square yards of leaves per hour
Sarah 4 6
James 3 5
a. Is Sarah going to specialize in raking leaves? Why or why not?
b. How long will Sarah and James take in doing the job if they specialize
according to their comparative advantages?
P9. With a week’s work of labor, England can produce either 8 yards of cloth and 0
barrels of wine or 2 barrels of wine and 0 yards of cloth or in any combination lying on
the line between these two points. With a week’s work of labor, Portugal can produce
either 12 yards of cloth and 0 barrels of wine or 6 barrels of wine and 0 yards of cloth or
in any combination lying on the line between these two points. Assume that no other
inputs are needed and that both England and Portugal have linear production possibility
frontiers.
a) If there is no trade, what is the price of wine in terms of cloth in England?

b) If there is no trade, what is the price of wine in terms of cloth in Portugal?
c) Which country has an absolute advantage in the production of which
good(s)? Which country has a comparative advantage in the production of
which good(s)?
d) If the countries start trading with each other, which country will specialize
and export which good?
e) What can be said about the price of wine at which trade will take place?

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Econ 102

2. What is the opportunity cost of producing 1 ton of fish in Britain?

a. About 20 bushels of wheat.

P4. Which of the following items

a. Bowed in toward the origin shape.

P7. The law of comparative advantage explains why

a. Advanced nations will not trade with less-developed countries.

Windows per hour Square yards of leaves per hour

a) If there is no trade, what is the price of wine in terms of cloth in England?

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