The following hypothetical production possibilities tables are for China and the United States. Assume that before specialization
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.
China Production Possibilities | ||||||
Product | A | B | C | D | E | F |
Apparel | 120,000 | 96,000 | 72,000 | 48,000 | 24,000 | 0 |
Chemicals (in tons) | 0 | 24 | 48 | 72 | 96 | 120 |
U.S. Production Possibilities | ||||||
Product | R | S | T | U | V | W |
Apparel | 40,000 | 32,000 | 24,000 | 16,0000 | 8,000 | 0 |
Chemicals (in tons) | 0 | 16 | 32 | 48 | 64 | 80 |
a. Are comparative-cost conditions such that the two countries should specialize? Yes or No
If so, what product should each produce?
China should produce : Apparel or Chemicals
The United States should produce: Apparel or Chemicals
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 1 unit of chemicals and that 16,000 units of apparel are exchanged for 24 units of chemicals. What are the gains from specialization and trade for each nation?
Select One:(The United States, or China) has a gain of ______ units of apparel.
Select One:(China, or The United States)has a gain of ______ tons of chemicals.
Economics
ISBN: 978-0073375694
18th edition
Authors: Campbell R. McConnell, Stanley L. Brue, Sean M. Flynn