3. Gains from trade Suppose there exist two imaginary countries, Everglades and Yosemite. Their labor forces are each capable of supplying four million hours per day that can be used to produce chinos, pistachios, or some combination of the two. The following table shows the amount of chinos or pistachios that can be produced by one hour of labor. Country Everglades Yosemite Chinos Pistachios (Pairs per hour of labor) (Pounds per hour of labor) 5 20 8 16 Suppose that initially Yosemite uses 1 million hours of labor per day to produce chinos and 3 million hours per day to produce pistachios, while Everglades uses 3 million hours of labor per day to produce chinos and 1 million hours per day to produce pistachios. As a result, Everglades produces 15 million pairs of chinos and 20 million pounds of pistachios, and Yosemite produces 8 million pairs of chinos and 48 million pounds of pistachios. Assume there are no other countries willing to engage in trade, so, in the absence of trade between these two countries, each country consumes the amount of chinos and pistachios it produces. Everglades's opportunity cost of producing 1 pair of chinos is chinos is of pistachios. Therefore, of pistachios, and Yosemite's opportunity cost of producing 1 pair of has a comparative advantage in the production of chinos, and has a comparative advantage in the production of pistachios.
3. Gains from trade Suppose there exist two imaginary countries, Everglades and Yosemite. Their labor forces are each capable of supplying four million hours per day that can be used to produce chinos, pistachios, or some combination of the two. The following table shows the amount of chinos or pistachios that can be produced by one hour of labor. Country Everglades Yosemite Chinos Pistachios (Pairs per hour of labor) (Pounds per hour of labor) 5 20 8 16 Suppose that initially Yosemite uses 1 million hours of labor per day to produce chinos and 3 million hours per day to produce pistachios, while Everglades uses 3 million hours of labor per day to produce chinos and 1 million hours per day to produce pistachios. As a result, Everglades produces 15 million pairs of chinos and 20 million pounds of pistachios, and Yosemite produces 8 million pairs of chinos and 48 million pounds of pistachios. Assume there are no other countries willing to engage in trade, so, in the absence of trade between these two countries, each country consumes the amount of chinos and pistachios it produces. Everglades's opportunity cost of producing 1 pair of chinos is chinos is of pistachios. Therefore, of pistachios, and Yosemite's opportunity cost of producing 1 pair of has a comparative advantage in the production of chinos, and has a comparative advantage in the production of pistachios.
Chapter1: Making Economics Decisions
Section: Chapter Questions
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Transcribed Image Text:3. Gains from trade
Suppose there exist two imaginary countries, Everglades and Yosemite. Their labor forces are each capable of supplying four million hours per day that
can be used to produce chinos, pistachios, or some combination of the two. The following table shows the amount of chinos or pistachios that can be
produced by one hour of labor.
Country
Everglades
Yosemite
Chinos
Pistachios
(Pairs per hour of labor) (Pounds per hour of labor)
5
20
8
16
Suppose that initially Yosemite uses 1 million hours of labor per day to produce chinos and 3 million hours per day to produce pistachios, while
Everglades uses 3 million hours of labor per day to produce chinos and 1 million hours per day to produce pistachios. As a result, Everglades produces
15 million pairs of chinos and 20 million pounds of pistachios, and Yosemite produces 8 million pairs of chinos and 48 million pounds of pistachios.
Assume there are no other countries willing to engage in trade, so, in the absence of trade between these two countries, each country consumes the
amount of chinos and pistachios it produces.
Everglades's opportunity cost of producing 1 pair of chinos is
chinos is
of pistachios. Therefore,
of pistachios, and Yosemite's opportunity cost of producing 1 pair of
has a comparative advantage in the production of chinos, and
has a comparative advantage in the production of pistachios.
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