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 D and for the United States is alternative S.
China Production Possibilities
Product A B C D E F
Apparel 50,000 40,000 30,000 20,000 10,000 0
Chemicals (in tons) 0 20 40 60 80 100
U. S. Production Possibilities
Product R S T U V W
Apparel 150,000 120,000 90,000 60,0000 30,000 0
Chemicals (in tons) 0 30 60 90 120 150
Instructions: Enter your answers as whole numbers.
a. Are comparative-cost conditions such that the two countries should specialize?
Yes
No.
If so, what product should each produce?
China should produce (Click to select)chemicalsapparel.
The United States should produce (Click to select)chemicalsapparel.
b. What is the total gain in apparel and chemical output that would result from such specialization?
Apparel: units.
Chemicals: tons.
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 unit of apparel for 1½ units of chemicals and that 20,000 units of apparel are exchanged for 30 units of chemicals. What are the gains from specialization and trade for each nation?
(Click to select)The United StatesChina has a gain of units of apparel.
(Click to select)ChinaThe United States has a gain of tons of chemicals.