Question

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	80,000	64,000	48,000	32,000	16,000	0
Chemicals(tons)	0	32	64	96	128	160

U.S. Production Possibilities
Product	R	S	T	U	V	W
Apparel	240,000	192,000	144,000	96,0000	48,000	0
Chemicals(tons)	0	48	96	144	192	240

Instructions: Enter your answers as whole numbers.

a. Are comparative-cost conditions such that the two countries should specialize?

      (Click to select)  Yes  No

     If so, what product should each produce?  

     China should produce  (Click to select)  chemicals  apparel  .

     The United States should produce  (Click to select)  chemicals  apparel  .

b. What is the total gain in apparel and chemical output that would result from such specialization?

    Apparel:

    

    Chemicals:

    

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 32,000 units of apparel are exchanged for 48 tons of chemicals. What are the gains from specialization and trade for each nation?

      (Click to select)  The United States  China  has a gain of  units of apparel.

      (Click to select)  The United States  China  has a gain of  tons of chemicals.

Answer 1