16 Dolorium 5 20 Initially, suppose Arcadia uses 1 million hours of labor per month to produce jeans and 3 million hours per month to produce rye, while Dolorium uses 3 million hours of labor per month to produce jeans and 1 million hours per month to produce rye. Consequently, Arcadia produces 8 million pairs of jeans and 48 million bushels of rye, and Dolorium produces 15 million pairs of jeans and 20

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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Consider two neighboring island countries called Arcadia and Dolorium. They each have 4 million labor hours available per month that they can use to produce jeans, rye, or a combination of both. The following table shows the amount of jeans or rye that can be produced using 1 hour of labor.
Country
Jeans
Rye
   
Arcadia 8 16
Dolorium 5 20

Initially, suppose Arcadia uses 1 million hours of labor per month to produce jeans and 3 million hours per month to produce rye, while Dolorium uses 3 million hours of labor per month to produce jeans and 1 million hours per month to produce rye. Consequently, Arcadia produces 8 million pairs of jeans and 48 million bushels of rye, and Dolorium produces 15 million pairs of jeans and 20 million bushels of rye. Assume there are no other countries willing to trade goods, so, in the absence of trade between these two countries, each country consumes the amount of jeans and rye it produces.

 

Arcadia's opportunity cost of producing 1 pair of jeans is  (1/2 , 1/4 , 2, 4 )   of rye, and Dolorium's opportunity cost of producing 1 pair of jeans is  (1/2, 1/4, 2, 4)  of rye. Therefore,(DOLORIUM OR ARCADIA)    has a comparative advantage in the production of jeans, and (DOLORIUM OR ARCADIA)   has a comparative advantage in the production of rye.

Suppose that each country completely specializes in the production of the good in which it has a comparative advantage, producing only that good. In this case, the country that produces jeans will produce ___________million pairs per month, and the country that produces rye will produce _________million bushels per month.

 Suppose the country that produces jeans trades 18 million pairs of jeans to the other country in exchange for 54 million bushels of rye.

When the two countries did not specialize, the total production of jeans was 23 million pairs per month, and the total production of rye was 68 million bushels per month. Because of specialization, the total production of jeans has increased by_________million pairs per month, and the total production of rye has increased by________million bushels per month.

 

 

Without Trade
Production 8 48 15 20
Consumption 8 48 15 20
With Trade
Production
 
 
 
 
Trade action  IMPORT 18/ EXPORT 18      IMPORT 54 OR EXPORT 54     IMPORT 18 OR EXPORT 18   IMPORT 54 OR EXPORT 54    
Consumption
 
 
 
 
Gains from Trade
Increase in Consumption
 
 
 
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