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 1/4 pound of pistachios, and Yosemite's opportunity cost of producing 1 pair of chinos is 1/2 pound of pistachios. Therefore, Yosemite has a comparative advantage in the production of chinos, and Everglades has a comparative advantage in the production of pistachios. Suppose that each country completely specializes in the production of the good in which it has a comparative advantage, producing only that good. In million pairs per day, and the country that produces pistachios will produce this case, the country that produces chinos will produce. million pounds per day.
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 1/4 pound of pistachios, and Yosemite's opportunity cost of producing 1 pair of chinos is 1/2 pound of pistachios. Therefore, Yosemite has a comparative advantage in the production of chinos, and Everglades has a comparative advantage in the production of pistachios. Suppose that each country completely specializes in the production of the good in which it has a comparative advantage, producing only that good. In million pairs per day, and the country that produces pistachios will produce this case, the country that produces chinos will produce. million pounds per day.
Chapter1: Making Economics Decisions
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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 i
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 1/4 pound of pistachios, and Yosemite's opportunity cost of producing 1 pair of
chinos is 1/2 pound of pistachios. Therefore, Yosemite has a comparative advantage in the production of chinos, and
Everglades has a comparative advantage in the production of pistachios
Suppose that each country completely specializes in the production of the good in which it has a comparative advantage, producing only that good. In
million pairs per day, and the country that produces pistachios will produce
this case, the country that produces chinos will produce.
million pounds per day.
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