9. Gains from trade Aa Aa Consider two neighboring island countries called Euphoria and Arcadia. They each have 4 million labor hours available per week that they can use to produce rye, jeans, or a combination of both. The following table shows the quantity of rye or jeans that can be produced using one hour of labor. Rye Jeans (Bushels per hour of labor) (Pairs per hour of labor) Euphoria 5 20 Arcadia 16 Initially, suppose Arcadia uses 1 million hours of labor per week to produce rye and 3 million hours per week to produce jeans, while Euphoria uses 3 million hours of labor per week to produce rye and 1 million hours per week to produce jeans. Consequently, Euphoria produces 15 million bushels of rye and 20 million pairs of jeans, and Arcadia produces 8 million bushels of rye and 48 million pairs of jeans. Assume there are no other countries willing to trade goods, so in the absence of trade between these two countries, each country consumes the quantity of rye and jeans it produces. Euphoria's opportunity cost of producing one bushel of rye is of jeans, and Arcadia's opportunity cost of producing one bushel of rye is production of rye and of jeans. Therefore, has a comparative advantage in the production of jeans. has a comparative advantage in the Suppose that each country specializes entirely in the production of the good in which it has a comparative advantage, producing only that good. In this case, the country that produces rye will produce produces jeans will produce bushels per week, and the country that pairs per week. In the table at the end of this problem, enter each country's production decision in the row labeled "Production." Suppose the country that produces rye trades 18 million bushels of rye to the other country in exchange for 54 million pairs of jeans. In the table at the end of this problem, select the quantity of each good that each country exports and imports in the boxes across the row labeled "Trade Action," and enter each country's final consumption of each good in the row labeled "Consumption." When the two countries did not specialize, the total production of rye was 23 million bushels per week and the total production of jeans was 68 million pairs per week. Because of specialization, the total production of rye has increased by bushels per week, and the total production of jeans has increased by pairs per week. Because the two countries produce more rye and more jeans under specialization, each country is able to gain from trade. Calculate the gains from trade-in this case, the amount by which each country has increased its consumption of each good relative to the quantities given in the first row of the table. In the table, enter this difference in the row labeled "Increase in consumption." Euphoria Arcadia Rye Jeans Rye Jeans (Millions of bushels) (Millions of pairs) (Millions of bushels) (Millions of pairs) Without Trade Prod. and consumption 15 20 48 With Trade Production Trade Action Consumption Gains from Trade Increase in consumption 2004 2016 Aelia