Arcadia's opportunity cost of producing 1 bushel of corn is of jeans, and Dolorium's opportunity cost of producing 1 bushel of corn is of jeans. Therefore, has a comparative advantage in the production of corn, and has a comparative advantage in the production of jeans. 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 corn will produce | million bushels per month, and the country that produces jeans will produce million pairs per month.

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
icon
Related questions
Question
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 corn, jeans, or a combination of both. The following table shows the amount of corn or jeans that can be produced using 1 hour of labor.
Corn
Jeans
Country
(Bushels per hour of labor)
(Pairs per hour of labor)
Arcadia
10
Dolorium
16
Initially, suppose Arcadia uses 1 million hours of labor per month to produce corn and 3 million hours per month to produce jeans, while Dolorium
uses 3 million hours of labor per month to produce corn and 1 million hours per month to produce jeans. Consequently, Arcadia produces 5 million
bushels of corn and 30 million pairs of jeans, and Dolorium produces 12 million bushels of corn and 16 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 amount of corn and jeans
it produces.
Arcadia's opportunity cost of producing 1 bushel of corn is
▼ of jeans, and Dolorium's opportunity cost of producing 1 bushel of corn is
▼ of jeans. Therefore,
v has a comparative advantage in the production of corn, and
▼ has a comparative
advantage in the production of jeans.
Suppose that each country completely specializes in the production of the good in which
has a comparative advantage, producing only that good. In
this case, the country that produces corn will produce
million bushels per month, and the country that produces jeans will produce
million pairs per month.
In the following table, enter each country's production decision on the third row of the table (marked "Production").
Suppose the country that produces corn trades 13 million bushels of corn to the other country in exchange for 39 million pairs of jeans.
In the following table, select the amount of each good that each country exports and imports in the boxes across the row marked "Trade Action," and
enter each country's final consumption of each good on the line marked "Consumption."
When the two countries did not specialize, the total production of corn was 17 million bushels per month, and the total production of jeans was 46
million pairs per month. Because of specialization, the total production of corn has increased by
million bushels per month, and the total
production of jeans has increased by
million pairs per month.
Because the two countries produce more corn and more jeans under specialization, each country is able to gain from trade.
Calculate the gains from trade-that is, the amount by which each country has increased its consumption of each good relative to the first row of the
table. In the following table, enter this difference in the boxes across the last row (marked "Increase in Consumption").
Transcribed Image Text: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 corn, jeans, or a combination of both. The following table shows the amount of corn or jeans that can be produced using 1 hour of labor. Corn Jeans Country (Bushels per hour of labor) (Pairs per hour of labor) Arcadia 10 Dolorium 16 Initially, suppose Arcadia uses 1 million hours of labor per month to produce corn and 3 million hours per month to produce jeans, while Dolorium uses 3 million hours of labor per month to produce corn and 1 million hours per month to produce jeans. Consequently, Arcadia produces 5 million bushels of corn and 30 million pairs of jeans, and Dolorium produces 12 million bushels of corn and 16 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 amount of corn and jeans it produces. Arcadia's opportunity cost of producing 1 bushel of corn is ▼ of jeans, and Dolorium's opportunity cost of producing 1 bushel of corn is ▼ of jeans. Therefore, v has a comparative advantage in the production of corn, and ▼ has a comparative advantage in the production of jeans. Suppose that each country completely specializes in the production of the good in which has a comparative advantage, producing only that good. In this case, the country that produces corn will produce million bushels per month, and the country that produces jeans will produce million pairs per month. In the following table, enter each country's production decision on the third row of the table (marked "Production"). Suppose the country that produces corn trades 13 million bushels of corn to the other country in exchange for 39 million pairs of jeans. In the following table, select the amount of each good that each country exports and imports in the boxes across the row marked "Trade Action," and enter each country's final consumption of each good on the line marked "Consumption." When the two countries did not specialize, the total production of corn was 17 million bushels per month, and the total production of jeans was 46 million pairs per month. Because of specialization, the total production of corn has increased by million bushels per month, and the total production of jeans has increased by million pairs per month. Because the two countries produce more corn and more jeans under specialization, each country is able to gain from trade. Calculate the gains from trade-that is, the amount by which each country has increased its consumption of each good relative to the first row of the table. In the following table, enter this difference in the boxes across the last row (marked "Increase in Consumption").
Arcadia
Dolorium
Corn
Jeans
Corn
Jeans
(Millions of bushels) (Millions of pairs) (Millions of bushels) (Millions of pairs)
Without Trade
Production
5
30
12
16
Consumption
5
30
12
16
With Trade
Production
Trade action
Consumption
Gains from Trade
Increase in Consumption
op o
Transcribed Image Text:Arcadia Dolorium Corn Jeans Corn Jeans (Millions of bushels) (Millions of pairs) (Millions of bushels) (Millions of pairs) Without Trade Production 5 30 12 16 Consumption 5 30 12 16 With Trade Production Trade action Consumption Gains from Trade Increase in Consumption op o
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 3 steps

Blurred answer
Knowledge Booster
Comparative Advantage
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:
9780190931919
Author:
NEWNAN
Publisher:
Oxford University Press
Principles of Economics (12th Edition)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education