Tom and Jerry have two tasks to do all day: make dishes and build fences. If Tom spends all day making dishes, he will have make 16 dishes. If he instead devotes his day to building fences, Tom will build 4 fences. If Jerry spends his day making dishes, he will make 14 dishes; if he spends the day building fences, he will build 7 fences. Based on their production possibilities frontiers, Tom and Jerry:
A. can both benefit from trade because absolute advantage exists.
B. cannot benefit from trade because Tom has the absolute advantage in both goods.
C. could both benefit from trade because comparative advantage exists.
D. will not decide to trade because no comparative advantage exists.
Answer: C
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If the price level increases, the AE curve shifts
A) upward and the AD curve shifts leftward. B) upward and there is a movement along the AD curve. C) upward and the AD curve shifts rightward. D) downward and there is a movement along the AD curve. E) downward and the AD curve shifts rightward.
Fixed exchange rates are rates set by government decisions and maintained by government actions.
Answer the following statement true (T) or false (F)
Which of the following are considered ad valorem taxes?
A. taxes based on the amount of debt that the government must repay B. taxes assessed by charging a flat amount per unit purchased C. taxes assessed by charging a rate equal to a percentage of an item's price D. taxes based on the amount of spending the government will undertake
Other things being equal, when the money price of a good increases, its relative price
A) stays the same. B) increases. C) decreases. D) falls to zero.