Answer
a) Please see the first graph.
b) China would export shirts for American computers. One example of China exporting shirts for American computers is China exporting 7 shirts for 1 computer (noted on the second graph). Both countries would benefit from trade.
c) The two countries would trade if the price per computer was between five shirts and ten shirts.
d) I expect trade between the two countries to go away.
Work Step by Step
a) If an American spent half their time making shirts, they would produce 50 shirts. If an American spent half their time making computers, they would produce 10 computers. If a Chinese worker spent half their time making shirts, they would produce 50 shirts. If an Chinese worker spent half their time making computers, they would produce 5 computers.
b) The opportunity cost for American workers to make a shirt is 1/5 of a computer, and the opportunity cost for Chinese workers to make a shirt is 1/10 of a computer. (Chinese workers have the comparative advantage for shirts.) The opportunity cost for American workers to make a computer is 5 shirts, and the opportunity cost for Chinese workers to make a computer is 10 shirts. (American workers have the comparative advantage for shirts.)
Since the price of the trade would be 7 shirts for 1 computer, Americans would be better off since they would be able to consume more shirts. (An American could make 5 shirts in the same time as one computer, so the Americans benefit by getting more shirts than they would normally produce.) Chinese workers would also be better off since they would be able to consume more computers. (A Chinese worker could make 10 shirts in the same time as one computer, so the Chinese benefit by getting more computers than they would normally produce.)
c) If the price per computer was less than five shirts, then the Americans would not trade (as their opportunity cost is 5 shirts per computer. If the price per computer was greater than 10 shirts, then the Chinese would not trade (as the opportunity cost for Chinese workers is 10 shirts per computer).
d) Since the two countries would have the same opportunity costs, there would be no benefit to trading. Thus, Americans would not consume more shirts than they could produce, and Chinese would not consume more computers than they could produce.
