1- Assume that the U.S. and China are the only two countries in the world. The U.S. has to give up 5 million tons of wheat to make 1 million t-shirts. China has to give up 3 million tons of wheat to make 1 million t-shirts. The countries trade with each other. Should the U.S. and China produce both wheat and t-shirts? Explain.
2- Based on your answer to question 1, use a supply and demand diagram to show the domestic market for t-shirts in the China under free trade. Be sure to label the following: domestic supply and demand; domestic and world prices; quantity supplied and demanded under free trade; and imports or exports.
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