ECON1001 Study Guide - Quiz Guide: Absolute Advantage, Comparative Advantage, Opportunity Cost

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14 Jun 2020
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Absolute advantage is…
Select one:
a. When you can produce some fixed amount of a good with fewer inputs
b. When you are the most productive at producing a particular good
c. All of the above/below
d. When you can produce the most of a good given fixed inputs
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Your answer is correct.
This is by definition, so nothing to explain here. Each answer is a different way of saying the same
thing.
The correct answer is: All of the above/below
Question 2
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You have a comparative advantage in producing something if…
Select one:
a. You have the lowest opportunity cost of production
b. You are more productive than others when producing that good
c. It is an area in which your country has a traditional expertise
d. You can add more value in that good than others
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Again, by definition.
The correct answer is: You have the lowest opportunity cost of production
Question 3
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Which of the following is a source of comparative advantage?
Select one:
a. Capital and labour
b. All of the above/below
c. Geography
d. Institutions
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Your answer is correct.
Capital, labour, geography and institutions are all “endowments” that can influence comparative
advantages.
The correct answer is: All of the above/below
Question 4
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The production possibilities frontier bows outwards because…
Select one:
a. Opportunity cost rises as an economy becomes more specialised
b. More production is better
c. Points inside the curve are inefficient
d. Opportunity cost falls as an economy becomes more specialised
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Labour and capital in an economy will tend to be specialised towards a particular activity. For
example, people who fish know how to do that; they don’t know how to assemble a car. If you
start to hyper-specialise in car-manufacturing you start to draw people increasingly specialised in
fishing away from that sector and into the car-manufacturing sector. As such, the opportunity
cost of car-making (in fish) increases with specialisation.
The correct answer is: Opportunity cost rises as an economy becomes more specialised
Question 5
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The optimal production mix of an economy is given by…
Select one:
a. All of the above/below
b. Its absolute advantages
c. Its comparative advantages
d. The point of tangency between its production possibilities frontier and global prices
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At the point of tangency between a nation’s PPF and global prices is the point of optimal
production because this is the level and mix of production where income is maximised. The
nation is balancing the opportunity cost of production in terms of inputs and output price.
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