1. How should each country produce if trade is not allowed? 2. Compute the opportunity cost of producing a unit of apparel in both countries. Explain which country has the comparatively advantage in producing apparels. 3. What is the range of relative prices of apparel so that trade is possible? 4. Given that the price of apparel and other goods are $130 and $260 respectively, demonstrate how trade reduce the opportunity cost of getting one unit of apparels in China. 5. What is the hourly wage in China and Bangladesh? In view of the much higher wage in China, explain whether China is still possible to export something to Bangladesh and why.

Still remember the story of China and Bangladesh discussed in class? Productivity in Bangladesh is only 28% of China's on average, but the productivity gap is closed in apparel. In apparel, productivity in Bangladesh is about 77 percent of China's. The situation is simplified in the following unit labor hour requirements. Unit labor hour requirements Apparels Other goods China 10/unit 10/unit Bangladesh 13/unit 39/unit