Problem 1 Assume that the comparative-cost ratios of two products-baby formula and tuna fish- are as follows in the nations of Canswicki and Tunate: Canswicki: 1 can baby formula = 2 cans tuna fish Junata: 1 can baby formula = 4 cans tuna fish In what product should each nation specialize? Which of the following terms of trade would be acceptable to both nations: (a) 1 can baby formula = 2 %% cans tuna fish; (b) 1 can baby formula = 1 can tuna fish; (c) 1 can baby formula = 5 cans tuna fish? Problem 2 The following hypothetical production possibilities tables are for China and the United States. Assume that before specialization and trade, the optimal product mix for China is alternative B and for the United States is alternative U. China Production Possibilities Product A B C D E F Apparel (in thousands) 30 24 18 12 6 Chemicals (in tons) 0 6 12 18 24 30 U.S. Production Possibilities Product R S T U V W Apparel (in thousands) 10 8 2 0 Chemicals (in tons) 0 8 12 16 20 a. Are comparative-cost conditions such that the two areas should specialize? If so, what product should each produce? b. What is the total gain in apparel and chemical output that would result from such specialization? c. What are the limits of the terms of trade? Suppose that the actual terms of trade are 1 unit of apparel for 1 % units of chemicals and that 4 units of apparel are exchanged for 6 units of chemicals. What are the gains from specialization and trade for each nation