Question 1.

For a competitive market, which of the following statements is correct?

a.   A seller can always increase her profit by raising the price of her product.

b.   If a seller charges more than the going price, buyers will go elsewhere to make their purchases.

c.   A seller often charges less than the going price to increase sales and profit.

d.   A single buyer can influence the price of the product, but only when purchasing from several sellers in a short period of time.

Singapore’s Production Possibilities Frontier

nails

100

90

80

70

60

50

40

30

20

10 

5      10    15    20    25    30    35    40    45    50        bolts

Malaysia’s Production Possibilities Frontier

nails

100

90

80

70

60

50

40

30

20

10 

5      10     15    20    25    30    35    40    45    50        bolts

(1).  If Singapore and Malaysia each divides its time equally between making bolts and making nails, then total production is

a.  15 bolts and 40 nails.

b. 25 bolts and 70 nails.

c. 30 bolts and 80 nails.

d. 50 bolts and 140 nails.

(2).  If the production possibilities frontiers shown are each for two days of production, then which of the following combinations of bolts and nails could Singapore and Malaysia  together make in a given 2-day production period?

a.   12 bolts and 120 nails

b.   24 bolts and 96 nails

c.   38 bolts and 50 nails

d.   44 bolts and 24 nails

(3).  If the production possibilities frontiers shown are each for two days of production, then which of the following combinations of bolts and nails could Singapore and Malaysia  together not make in a given 2-day production period?

a.   9 bolts and 122 nails

b.   21 bolts and 98 nails

c.   36 bolts and 56 nails

d.   46 bolts and 18 nails

(4).  Malaysia’s opportunity cost of one nail is

a.   1/4 bolt and Singapore’s opportunity cost of one nail is 1/2 bolt.

b.   1/4 bolt and Singapore’s opportunity cost of one nail is 2 bolts.

c.   4 bolts and Singapore’s opportunity cost of one nail is 1/2 bolt.

d.   4 bolts and Singapore’s opportunity cost of one nail is 2 bolts.

(5).   Suppose Singapore decides to increase its production of bolts by 10.  What is the opportunity cost of this decision?

a.   1/2 nail

b.   2 nails

c.   5 nails

d.   20 nails

(6).  Suppose Malaysia is willing to trade 3 nails to Singapore for every bolt that Singapore          makes and sends to Malaysia.  Which of the following combinations of bolts and nails could Malaysia then consume, assuming Singapore specializes in making bolts and Malaysia         specializes in making nails?

a . 8 bolts and 56 nails

b.  14 bolts and 44 nails

c .  18 bolts and 32 nails

d. 20 bolts and 26 nails

(7).  Singapore has an absolute advantage in the production of

a.   bolts and a comparative advantage in the production of bolts.

b.  bolts and a comparative advantage in the production of nails.

c.   nails and a comparative advantage in the production of bolts.

d.   nails and a comparative advantage in the production of nails.

(8).  Malaysia has an absolute advantage in the production of

a.   bolts and a comparative advantage in the production of bolts.

b.  bolts and a comparative advantage in the production of nails.

c.   nails and a comparative advantage in the production of bolts.

d.   nails and a comparative advantage in the production of nails.

(9).  If Singapore and Malaysia switch from each country dividing its time equally between the production of bolts and nails to each country spending all of its time producing the good in which it has a comparative advantage, then total production will increase by

a.   5 bolts and 10 nails.

b.   15 bolts and 40 nails.

c.   20 bolts and 50 nails.

d.   30 bolts and 80 nails.

(10).If Singapore and Malaysia each spends all its time producing the good in which it has a comparative advantage and trade takes place at a price of 12 bolts for 36 nails, then

a.   neither Singapore nor Malaysia will gain from this trade.

b.   Singapore will gain from this trade, but Malaysia will not.

c.   Malaysia will gain from this trade, but Singapore will not.

d.  both Singapore and Malaysia will gain from this trade.