5.00 points You did not receive full credit for this question in a previous atte

Question

5.00 points You did not receive full credit for this question in a previous attempt The flowing hypotetical production possbites tables ro tr China and the United States Assu etat bere spe vatrand rade the oct alp dama fr ha·anen tve and frie Unted Sans is Instructions: Enter your answers as whole numbers a Are comparative-cost conditions such that the two countries should speciale? If so, what product shouks each produce Cina should produce cheics D The United States shouid produce D b.what is the totai gain in apparee and chemo" o/p? rat wode mumfrom sch spectator? Apparel Chemicals G. What are the imts of the terms of trade? 000 units of apparel for 1 ton of chemicals and unts of apparel for 2 tons of chemicals Suppose that the actual tems oftrade are 1 untofapparei tor 1% its of chemicals and that 16,000 units of apparel aro exchanged for 24 unts ofcne cais what are the gans from spec aizabon adsede for

Explanation / Answer

(a) Yes, because the opportunity cost of apparel is less (1A = 1C) in China than in the United States (1A = 2C). China should produce apparel and the United States should produce chemicals.

(b) If they specialize, the United States can produce 20 tons of chemicals and China can produce 30,000 units of apparel. Before specialization China produced alternative B and the United States alternative U for a total of 28,000 units of apparel (24,000 + 4,000) and 18 tons of chemicals (6 tons + 12 tons). The gain is 2,000 units of apparel and 2 tons of chemicals.

(c) The limits of the terms of trade are determined by the comparative cost conditions in each country before trade: 1A = 1C in China and 1A = 2C in the United States. The terms of trade must be somewhere between these two ratios for trade to occur.

If the terms of trade are 1A = 1-1/2C, China would end up with 26,000 units of apparel (= 30,000 - 4,000) and 6 tons of chemicals. The United States would have 4,000 units of apparel and 14 tons of chemicals (= 20 - 6). China has gained 2,000 units of apparel. The United States has gained 2 tons of chemicals.

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