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 B and for the United States is alternative U. [Note: 1 unit of apparel is 1,000 items and 1 unit of chemicals is 1 ton.]

China Production Possibilities
Product	A	B	C	D	E	F
Apparel (in thousands)	30	24	18	12	6	0
Chemicals (in tons)	0	6	12	18	24	30

U.S. Production Possibilities
Product	R	S	T	U	V	W
Apparel (in thousands)	10	8	6	4	2	0
Chemicals (in tons)	0	4	8	12	16	20

Are comparative-cost conditions such that the two areas should specialize?

      (Click to select)  Yes  No

     If so, what product should each produce?  

     China should produce   ________ apparel  chemicals  neither  .

     The United States should produce  ________ apparel  chemicals  neither  .

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

    Apparel:

      unit(s)

    Chemicals:

      unit(s)

c. What are the limits of the terms of trade?

     The most China will trade (give up) is _____ unit(s) of apparel for 1 ton of chemicals.

     The most the United States will trade (give up) is ____ ton(s) of chemicals for 1 unit of apparel.

     This implies the following range, or limits, of the terms of trade:

     1 unit of apparel for ____ ton(s) of chemicals (from China's position)

     1 unit of apparel for ____ ton(s) of chemicals (from the U.S. position)

Suppose that the actual terms of trade are 1 unit of apparel for 1½ tons of chemicals, and that the amount exchanged is 4 units of apparel for 6 tons of chemicals. What are the gains from specialization and trade for each nation?

     China has a gain of _____ ton(s) of chemicals  unit(s) of apparel  .

     The United States has a gain of _____ ton(s) of chemicals  unit(s) of apparel  .

Answer 1