The following hypothetical production possibilities tables are for China and the

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.

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 1½ units of chemicals and that 20,000 units of apparel are exchanged for 30 units of chemicals. What are the gains from specialization and trade for each nation?

China has a gain of _______ units of apparel.

The United States has a gain of _______ tons of chemicals.

China Production Possibilities Product A B C D E F   Apparel 150,000 120,000 90,000 60,000 30,000 0   Chemicals (in tons) 0 30 60 90 120 150

Explanation / Answer

Here we calculate the Limits of terms of trade first we look the opportunity cost of the Apparels and chemicals. Here,

1000 units of apparel for 1 tons of chemicals and 1000 units of apperal for 2 tons of chemicals.

Here,

China has gain of 10,000 unis of apparel

The united states has gain of 10 tons of chemicals.

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