*note: Please give detailed explanation, I really can\'t understand this...thank
ID: 1202604 • Letter: #
Question
*note: Please give detailed explanation, I really can't understand this...thanks!!
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.
a.) What is the total gain in apparel and chemical output that would result from such specialization?
Apparels: ___________units
Chemicals: __________tons
b.) 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 16,000 units of apparel are exchanged for 24 units of chemicals. What are the gains from specialization and trade for each nation?
((Click to select)China/The United States) has a gain of _______units of apparel.
((Click to select)China/The United States) has a gain of _______tons of chemicals.
Explanation / Answer
If they specialize, the United States can produce 80 tons of chemicals and China can produce 120,000 units of apparel. Before specialization China produced alternative B and the United States alternative U for a total of 100,000 units of apparel (96,000 + 16,000) and 72 tons of chemicals (24 tons + 48 tons). The gain is 10,000 units of apparel and 8 tons of chemicals.
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 104,000 units of apparel (120,000 - 16,000) and 24 tons of chemicals. The United States would have 16,000 units of apparel and 56 tons of chemicals (80 - 24). China has gained 10,000 units of apparel. The United States has gained 8 tons of chemicals.
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