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.
Instructions:Enter your answers as whole numbers.
a. Are comparative-cost conditions such that the two countries should specialize?
If so, what product should each produce?
China should produce
.
The United States should produce
b. What is the total gain in apparel and chemical output that would result from such specialization?
Apparel: units
Chemicals: 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 1½ 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?
has a gain of units of apparel.
has a gain of ton(s) of chemicals.
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