Question

5. Belville has a comparative advantage in the production of towels, but Russville has an absolute advantage in the production of towels. If these two countries decide to trade,

	a.	Russville should export towels to Belville.
	b.	Without additional information about opportunity costs, this question cannot be answered.
	c.	Belville should export towel to Russville.
	d.	trading towels would provide no net advantage to either country. 11. For a country that chooses not to trade and remains self-sufficient a. the PPF is greater than the consumption possibilities frontier. b. the PPF is the same as the consumption possibilities frontier. c. the PPF is always a straight line. d. the PPF is less than the consumption possibilities frontier.

13. If two counties trade goods and services it's most likely because....

	a.	the two countries wish to take advantage of the principle of comparative advantage.
	b.	the rich residemts in each of the two countries are able to benefit, through trade, by exploiting people who are poor.
	c.	some people involved in the trade do not understand that one of the two countries will become worse-off because of the trade.
	d.	the opportunity costs of producing various goods are identical for the two countries.

Answer 1

5. B. Without additional information about opportunity costs, this question cannot be answered.

Explanation: The production decision of a country depends on the opportunity cost at which the country can produce the goods. Here, sufficient information has not been provided regarding the opportunity cost of producing towels in both the countries.

11. b. the PPF is the same as the consumption possibilities frontier.

Explanation: The production possibility frontier shows the combinations of goods and services a country can produce at the given resource and technological level. The consumption possibility frontier shows the combinations of goods and services a country can consume at the given resource and technological level. Without trade, a country cannot consume more than it produces. So, without trade, the PPF is the same as the consumption possibilities frontier.

13. a. the two countries wish to take advantage of the principle of comparative advantage.

Explanation: If two countries produce the products in which they have comparative advantages and then trade with each other, both the countries would benefit in terms of lower cost and higher consumption.