Because the two countries produce more jeans and more rye 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 thetable. In the following table, enter this difference in the boxes across the last row (marked "Increase in Consumption").ContenteDoloriumJeansRyeJeansRye(Millions of pairs)(Millions of bushels)(Millions of pairs)(Millions of bushels)Without TradeProduction8.481520Consumption8.481520With TradeProduction3280Trade actionExports 18Imports 54Imports 18Exports 54Consumption14541826Gains from TradeIncrease in Consumption Consider two neighboring island countries called Contente and Dolorium. They each have 4 million labor hours available per month that they can useto 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.JeansRyeCountry(Pairs per hour of labor)(Bushels per hour of labor)Contente816Dolorium5.20Initially, suppose Contente uses 1 million hours of labor per month to produce jeans and 3 million hours per month to produce rye, while Doloriumuses 3 million hours of labor per month to produce jeans and 1 million hours per month to produce rye. Consequently, Contente produces 8 millionpairs 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 othercountries willing to trade goods, so, in the absence of trade between these two countries, each country consumes the amount of jeans and rye itproduces.

Answered: Because the two countries produce more…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Because the two countries produce more jeans and more rye 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").
Contente
Dolorium
Jeans
Rye
Jeans
Rye
(Millions of pairs)
(Millions of bushels)
(Millions of pairs)
(Millions of bushels)
Without Trade
Production
8.
48
15
20
Consumption
8.
48
15
20
With Trade
Production
32
80
Trade action
Exports 18
Imports 54
Imports 18
Exports 54
Consumption
14
54
18
26
Gains from Trade
Increase in Consumption

Consider two neighboring island countries called Contente 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.
Jeans
Rye
Country
(Pairs per hour of labor)
(Bushels per hour of labor)
Contente
8
16
Dolorium
5.
20
Initially, suppose Contente 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, Contente 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.

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International trade refers to the exchange of goods and services between two or more nations for money. The main reason behind the international trade is the comparative advantage experienced by some nations in production of certain goods.

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