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The following question is taken from Economics: Principles and Applications 6th Edition, by Hall and Lieberman.

This question about applying the theory of comparative advantage between a hypothetical trade situation between US and China. Trade between these two countries involve only two goods - soybeans and T-Shirts. It has been established that the US has CA in soybean production whilst China has CA in T-Shirts. It is further known that, for the US, the opportunity cost of producing 100 bushels of soybeans is 200 T-Shirts. Now consider Qtn 9b in the top image.

enter image description here

My working is in bottom image and my final answer is that the US consumers will gain 70 more T-Shirts for consumption, compared to the situation before trade. However, in an answer I found online, the US has 270 more T-Shirts available for consumption, compared to the situation before trade.

My answer was 70 more T-Shirts. Consumption experiences a net gain of 70. The raw gain in consumption due to importing from China is 270 but that is AFTER the US incurs the opportunity cost of producing 100 bushels of soybeans (due to specialisation) - which is decreasing production of T-Shirts by 200.

Where did I go wrong?

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  • $\begingroup$ As far as I know, you are correct. I'm guessing your online answer source assumed there was no opportunity cost (U.S. production after specialization = U.S. production before specialization + 100 bushels of soybean). What was your source? (I'm a highschooler that took AP Macro this year. Not uncommonly, I found that some online answers were straight up wrong.) $\endgroup$ – TempestJ Jun 14 '17 at 3:20
  • $\begingroup$ Hello! My source was this website called "Chegg". $\endgroup$ – Charlz97 Jun 17 '17 at 2:16
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You did not factor in the 4 Darwinian goals of global trade:

  1. Find foreign markets to absorb excess production, that is, where excess production can be dumped.
  2. Extract foreign resources at low prices.
  3. Deny geopolitical rivals access to these resources.
  4. Open foreign markets to domestic capital and credit so domestic capital can buy up all the productive assets and resources.
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