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) Are comparative-cost conditions such that the two areas should specialize? If so, what product should each produce?

B) What is the totoal gain in appearel and chemical output that would result from such specialization?

C) What are the limits of he terms of trade? Suppose that the actual terms of trade are 1 unit of appearel for 1.5 units of chemicals and that 4 units of appearel are exchanged for 6 units of chemicals. What are the gains from specialization and trade for each nation?

   China Production Possibilites:

Products                                A            B           C          D         E         F

Apparel (in thousands)           30           24          18         12        6         0

Chemicals (in tons)                  0             6           12          18        24     30

   U.S. Production Possibilites:

Products                                R            S          T        U         V          W

Apparel (in thousands)           10             8         6         4         2          0

Chemicals (in tons)                  0             4            8        12       16         20