An individual firm has little incentive to voluntarily internalize any external costs it was creating because:
a. it would shift its cost curves downward.
b. it would put it at a competitive disadvantage compared to its rivals.
c. it would have to increase output to make up for the added costs.
d. they do not care at all about other people.
Question 2Alpha can produce either 18 tons of oranges or 9 tons of apples in a year, while Omega can produce either 16 tons of oranges or 4 tons of apples. The opportunity costs of producing 1 ton of apples for Alpha and Omega, respectively, are:
a. 0.25 tons of oranges; 0.5 tons of oranges.
b. 9 tons of oranges; 4 tons of oranges.
c. 2 tons of oranges; 4 tons of oranges.
d. 4 tons of oranges; 2 tons of oranges.
Question 3Suppose France can produce 9,000 potatoes or 3,000 lemons per day, and that Italy can produce 3,000 potatoes or 3,000 lemons per day. Which of the following statements in this context is true?
a. France has an absolute advantage in producing lemons.
b. Italy has a comparative advantage in producing potatoes.
c. Italy would be willing to trade one lemon for anything greater than one potato.
d. Both countries would be willing to trade at a rate of one lemon for one potato.
e. France has a comparative advantage in producing lemons.
Question 4When the production or consumption of a good involves an externality:
a. resources are necessarily overallocated to the good.
b. resources are necessarily underallocated to the good.
c. someone not involved in buying or selling the good is affected.
d. the market will efficiently allocate resources to its production.
Question 5Alpha can produce either 18 tons of oranges or 9 tons of apples in a year, while Omega can produce either 16 tons of oranges or 4 tons of apples. The opportunity costs of producing 1 ton of oranges for Alpha and Omega, respectively, are:
a. 0.25 tons of apples; 0.5 tons of apples.
b. 9 tons of apples; 4 tons of apples.
c. 2 tons of apples; 4 tons of apples.
d. 0.5 tons of apples; 0.25 tons of apples.
Question 6The limits of the terms of trade are determined by the:
a. distribution costs in each country.
b. stock of foreign exchange in each country.
c. average total costs of producing the commodities in each country.
d. opportunity costs in each country.
e. currency exchange rate between the trading partners.
Question 7Suppose a product produces substantial spillover costs. If the government adopts a policy that forces producers to bear those costs:
a. the equilibrium quantity of the product exchanged will fall.
b. the initial misallocation of resources will be corrected.
c. the equilibrium price of the product will rise.
d. all of the above will be true.
Question 8Mutually beneficial trade will occur whenever the exchange rate between the goods involved is set at a level where:
a. each country can export a good at a price below the opportunity cost of producing the good in the domestic market.
b. each country can import a good at a price below the opportunity cost of producing the good in the domestic market.
c. the exchange ratio is exactly equal to the opportunity cost of producing the good in each country.
d. each country will specialize in the production of those goods in which it has an absolute advantage.
Question 9The terms of trade is defined as:
a. the quantity of inputs sacrificed to produce each unit of a good.
b. the quantity of one good that is exchanged for a quantity of another good.
c. the ratio of the total cost of production of individual traders.
d. the marginal cost of producing one good as a percentage of the marginal cost of another good.
e. the ratio of total exports of a nation to its total production.
Question 10In a competitive market,
a. demand will always reflect all spillover costs.
b. demand will always reflect all spillover benefits.
c. supply will always reflect all spillover costs.
d. none of the above are true.
Question 11Samoa could produce either 3 coconuts or 12 pineapples per worker, while Guam could produce either 5 coconuts or 20 pineapples per worker. In this situation:
a. if trade occurs, both countries will be able to consume beyond their original production possibilities frontiers.
b. Guam will be better off if it exports coconuts and imports pineapples.
c. both Samoa and Guam will be better off if Samoa produces both coconuts and pineapples.
d. mutually beneficial trade cannot occur.
Question 12Suppose labor productivity differences are the only determinants of comparative advantage, and Brazil and Chile both produce only coffee and sugar. In Chile, either 5 units of coffee or 2 units of sugar can be produced in one day. In Brazil, a day of labor produces either 2 units of coffee or 1 unit of sugar. What is the opportunity cost of producing coffee in Chile?
a. Half a pound of sugar
b. Two-fifth of a pound of sugar
c. 2 pounds of sugar
d. One-third of a pound of sugar
e. 4 pounds of sugar
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