he 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 20,000 16,000 12,000 8,000 4,000 0 Chemicals(tons) 0 8 16 24 32 40 U.S. Production Possibilities Product R S T U V W Apparel 60,000 48,000 36,000 24,0000 12,000 0 Chemicals(tons) 0 12 24 36 48 60 Instructions: Enter your answers as whole numbers. a. Are comparative-cost conditions such that the two countries should specialize? If so, what product should each produce? China should produce . The United States should produce . b. What is the total gain in apparel and chemical output that would result from such specialization? Apparel: units Chemicals: ton(s) 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 8,000 units of apparel are exchanged for 12 tons of chemicals. What are the gains from specialization and trade for each nation?
Problem 20-03 (algo)
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 | 20,000 | 16,000 | 12,000 | 8,000 | 4,000 | 0 |
| Chemicals(tons) | 0 | 8 | 16 | 24 | 32 | 40 |
| U.S. Production Possibilities | ||||||
|---|---|---|---|---|---|---|
| Product | R | S | T | U | V | W |
| Apparel | 60,000 | 48,000 | 36,000 | 24,0000 | 12,000 | 0 |
| Chemicals(tons) | 0 | 12 | 24 | 36 | 48 | 60 |
Instructions: Enter your answers as whole numbers.
a. Are comparative-cost conditions such that the two countries should specialize?
If so, what product should each produce?
China should produce
.
The United States should produce
.
b. What is the total gain in apparel and chemical output that would result from such specialization?
Apparel: units
Chemicals: ton(s)
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 8,000 units of apparel are exchanged for 12 tons of chemicals. What are the gains from specialization and trade for each nation?
has a gain of units of apparel.
has a gain of ton(s) of chemicals.
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