Transport Costs and Borders: Sample Quiz

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1. In one hour, Robinson Crusoe can either catch 7 fish or collect 3 coconuts, and his companion Friday can either catch 8 fish or collect 4 coconuts. What does the law of comparative advantage imply about specialization in this case?

Friday should do all the work.
Crusoe should catch fish, and Friday should collect coconuts.
Crusoe should collect coconuts, and Friday should catch fish.
Crusoe should trade, but Friday should refuse.
Crusoe should work extra hard so that he will not exploit Friday.

2. From an economic-efficiency point of view, the basic problem with tariffs and quotas is that they cause:

the world as a whole to be inside its production-possibilities frontier, though each nation individually may be on its frontier.
the world as a whole to be inside its production-possibilities frontier because each nation will be inside its national production frontier.
the rich to get too much relative to the poor.
too much of the protected goods to be produced worldwide and too little of the unprotected goods to be produced.

3. The idea of comparative advantage is based on:

game theory.
opportunity cost.
tax incidence.
property rights.

4. In the model of monopolistic competition, entry is:

easy, and demand curves slope downward.
easy, and demand curves are horizontal.
difficult, and demand curves slope downward.
difficult, and demand curves are horizontal.

5. The major use of the Hotelling model has been to:

explain barriers to entry.
examine how political parties try to position themselves on issues.
develop the theory of monopolistic competition.
show that the law of comparative advantage does hold.

6. "We are poor because you are rich. Through trade you exploit us." This view, which has been fairly common in some nations, sees exchange as:

zero sum.
positive sum.
a feedback relationship.
resulting from absolute advantage, not comparative advantage.

7. Which explanation of a quota on foreign products would make the most sense to an economist?

The quota is a useful way to raise government revenue, and because governments always can spend more, quotas are common.
Quotas protect consumers from unfair competition, and the government establishes them as part of consumer protection.
Quotas harm consumers but help producers, and they can exist when producers have more political clout than consumers.
Quotas make no sense to economists and they have no explanation of why they exist.

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Copyright Robert Schenk