1. Suppose that with 1 unit of labor, Canada can produce 40 TVs or 20 computers. With 1 unit of labor, Taiwan can produce 30 TVs or 10 computers. Which of the following is correct?

a. Taiwan has a comparative advantage in the production of computers.

b. Canada has an absolute advantage in the production of neither good.

c. Canada has a comparative advantage in the production of computers.

d. Taiwan has an absolute advantage in the production of computers.

e. Taiwan has an absolute advantage in the production of TVs.

2. Assume that a country imposes a tariff in order to gain a price advantage on an item. What is the typical response from the exporting country?

a. It accepts the situation, and does nothing about it.

b. It seeks greater efficiency in order to offset the tariff.

c. It refuses to sell to the country that imposes the tariff.

d. It retaliates by imposing tariffs or quotas on items from the other country.

3. The danger of using the national defense argument to protect domestic industries necessary to wage war is that

a. it has no validity on non-economic grounds.

b. it is unrelated to the United States' ability to wage war.

c. other nations will retaliate with tariffs against U.S. producers of war material.

d. industries with only the most peripheral relationship to defense are likely to invoke this argument on their behalf.

4. In the long run, foreign labor remains cheap when and if

a. it becomes highly efficient and competes successfully internationally.

b. countries erect barriers to trade between poor countries.

c. productivity increases more rapidly in poor countries than in rich countries.

d. it remains inefficient compared to other countries' labor.

6. If a currency increases in value as a result of government decree rather than market forces, the process is known as

a. reflation.

b. revaluation.

c. appreciation.

d. value-added.