Module V: Economic Institutions and Policies

33. 34. 35. 36. 37. 38. Which of these statements represents the least appropriate use of concept of opportunity cost? a. b. Exports can be though of as the opportunity cost imports The opportunity cost of product B is the amount of product A that could be produced with the same resources. The opportunity cost increased output may be measured by the utility of leisure given up to produce the output . The opportunity cost of producing C is the sum of its xed and variable costs. Nations through trade a. b. may consume at levels beyond their production possibilities frontiers will be limited in their consumption to points on the production possibilities frontier will not alter their previous production patterns . are more likely to be conned to choice inside their production possibilities frontiers. The doctrine of comparative advantage says that there are gains from international trade a. only if both comparative and absolute advantage are present b. if opportunity costs are the same in the countries involved c. d. if countries specialize in the production of goods in which they are only if there are economies of scale available relatively more efcient. Inaugurating trade with nations whose wage levels are much lower a. b. c. d. will lower the real wages in the high-wage nations will probably raise per capita real income in both countries may help political relationships but does not contribute economically will lower the real wages in low-gain nations. A country would welcome an improvement in its terms of trade because a. b. c. it can then export more its exchange rate will rise the cost of its imports will fall in terms of what it must give up to get them it now becomes cheaper to produce the same goods at home instead of importing them For a country with one important exported commodity (such as soil) P a rise in its price in international exported markets will improve the 235 country's terms of trade. a fall in its price will improve the terms of trade its terms of trade will be unaffected by a change in its price . a rise in its price will be helpful to the terms of trade and balance of payments only if world demand for it is elastic