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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
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. F Product Apparel Chemicals (tons) China Production Possibilities B D 60,000 48,000 36,000 24,000 0 12 24 36 E 12,000 48 0 60 V W Product Apparel Chemicals (tons) U.S. Production Possibilities R S T U 20,000 16,000 12,000 8,0000 0 8 16 24 0 4,000 32 40 Instructions: Enter your answers as whole numbers. a. Are comparative-cost conditions such that the two countries should specialize? Yes v If so, what product should each produce? China should produce apparel The United States should produce chemicals b. What is the total gain in apparel and chemical output that would result from such specialization? Apparel: 16000 units Chemicals: 16 ton(s) c. What are the limits of the terms of trade? units of apparel for 1 ton of chemicals and units of apparel for 2 tons of chemicals. Suppose that the actual terms of trade are 1,000 units of apparel for 112 tons of chemicals and that 8,000 units of apparel are exchanged for 12 tons of chemicals. What are the gains from specialization and trade for each nation? (Click to select) has a gain of units of apparel. (Click to select) has a gain of ton(s) of chemicals
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