CLEP Macroeconomics chapter practice4 questions

04 Comparative Advantage, Specialization, and Trade

These questions come directly from the chapter practice in the book. Choose the best answer, check your reasoning, and use the explanation to correct any gap.

Question 1

Question 1 of 4

Country X can produce 12 units of wheat or 6 units of cloth per day; Country Y can produce 8 units of either. How should the two countries specialize?

Wheat costs Country X (6)/(12)=(1)/(2) unit of cloth and costs Country Y a full unit, so X grows the wheat. The cloth costs reverse: 2 wheat for X against 1 for Y. A gives each country the good it produces at the higher cost. B mistakes Country Y's one-for-one tradeoff for efficiency in both goods, C compares total wheat with total cloth instead of comparing the two producers, and E treats an absolute advantage in one good as a reason to stay self-sufficient.
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D. Country X in wheat, Country Y in cloth.

Wheat costs Country X (6)/(12)=(1)/(2) unit of cloth and costs Country Y a full unit, so X grows the wheat. The cloth costs reverse: 2 wheat for X against 1 for Y. A gives each country the good it produces at the higher cost. B mistakes Country Y's one-for-one tradeoff for efficiency in both goods, C compares total wheat with total cloth instead of comparing the two producers, and E treats an absolute advantage in one good as a reason to stay self-sufficient.

Question 2

Question 2 of 4

A country can hold a comparative advantage even when its partner produces more of both goods. Which of the following determines where that advantage lies?

Comparative advantage ranks producers by what each gives up, not by how much each can make. A and C restate absolute advantage: a bigger labor force or a frontier lying farther out raises what a country can produce without touching the rate at which one good trades for the other at home. D reverses cause and effect, since the terms of trade follow from a cost gap rather than create it. E treats a past trade pattern as the source of that gap.
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B. Each country's opportunity cost in the two goods

Comparative advantage ranks producers by what each gives up, not by how much each can make. A and C restate absolute advantage: a bigger labor force or a frontier lying farther out raises what a country can produce without touching the rate at which one good trades for the other at home. D reverses cause and effect, since the terms of trade follow from a cost gap rather than create it. E treats a past trade pattern as the source of that gap.

Question 3

Question 3 of 4

Country R gives up 2 units of corn per unit of steel produced, and Country S gives up 5. Measured in corn per unit of steel, a trading rate benefits both countries only if it

Country R parts with steel only for more corn than the 2 it sacrifices at home, and Country S buys steel only for less than the 5 that producing it would cost. Any rate between the two clears both hurdles. B leaves Country R worse off than growing corn itself, and C leaves Country S worse off than building its own steel. D and E land on a domestic cost, where that country is exactly indifferent and gains nothing.
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A. lies between 2 and 5

Country R parts with steel only for more corn than the 2 it sacrifices at home, and Country S buys steel only for less than the 5 that producing it would cost. Any rate between the two clears both hurdles. B leaves Country R worse off than growing corn itself, and C leaves Country S worse off than building its own steel. D and E land on a domestic cost, where that country is exactly indifferent and gains nothing.

Question 4

Question 4 of 4

Each week Country X can produce 30 drones or 10 scanners, and Country Y can produce 16 drones or 8 scanners. Comparative advantage points to

A scanner costs Country X 3 drones and costs Country Y only 2, so Y builds the scanners; the drone costs are (1)/(3) scanner for X against (1)/(2) for Y, so X builds the drones. A assigns each country the good it makes at the higher cost. B and D both stop at Country X's absolute lead, one turning it into production of everything and the other into a reason not to trade. C compares drones with scanners inside each country rather than across the two.
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E. Country X in drones and Country Y in scanners

A scanner costs Country X 3 drones and costs Country Y only 2, so Y builds the scanners; the drone costs are (1)/(3) scanner for X against (1)/(2) for Y, so X builds the drones. A assigns each country the good it makes at the higher cost. B and D both stop at Country X's absolute lead, one turning it into production of everything and the other into a reason not to trade. C compares drones with scanners inside each country rather than across the two.

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