Absolute Advantage is about specialization Comparative Advantage is about opportunity cost Total resources available for China and the US = 800 each Terms of trade (TT) are 10,000 Wheat for 10 Aircraft Resources required to produce 1000 tons of wheat and 1 aircraft Wheat Aircraft 20 80 China US Production and consumption before any trade occurs Aircraft China US Questions: 40 20 Wheat 20,000 5,000 10 20 (This is point B on the PPF) (This is point C on the PPF) 1) Use a graph to plot the Production Possibilities Frontier (PPF)s for each country. Place Aircraft on the horizontal (x) axis, and Wheat on the vertical (y) axis (you may use one graph for each country). Give yourself plenty of room to work. (2 points) 2) Plot points B and C for the China and US respectively (these reflect production and consumption before trade). (2 points) 3) Which country has an Absolute Advantage for each product? Explain why. (6 points) 4) Have each country specialize (product the maximum quantity of the product it produces more efficiently) and trade (see TT above). Fill in the information on the table below Production and consumption after specialization and trade (4 points) Wheat Aircraft China US (This is B') (This is C') 5) On the graph(s) you crated, plot points A' and B' for China and the US respectively reflecting production and consumption points after specialization and trade. (2 points) 6) What are the gains/losses after specialization and trade for each country? (Compare point B to B' and point C to C') (4 points)