Consider two neighboring island countries called Bellissima 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) Bellissima 10 Dolorium 4 16 Initially, suppose Bellissima 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, Bellissima produces 5 million pairs of jeans and 30 million bushels of rye, and Dolorium produces 12 million pairs of jeans and 16 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. Bellissima's opportunity cost of producing 1 pair of jeans is of rye, and Dolorium's opportunity cost of producing 1 pair of jeans is v of rye. Therefore, has a comparative advantage in the production of jeans, and has a comparative advantage in the production of rye. 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 jeans will produce million pairs per month, and the country that produces rye will produce million bushels per month. In the following table, enter each country's production decision on the third row of the table (marked "Production").
Consider two neighboring island countries called Bellissima 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) Bellissima 10 Dolorium 4 16 Initially, suppose Bellissima 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, Bellissima produces 5 million pairs of jeans and 30 million bushels of rye, and Dolorium produces 12 million pairs of jeans and 16 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. Bellissima's opportunity cost of producing 1 pair of jeans is of rye, and Dolorium's opportunity cost of producing 1 pair of jeans is v of rye. Therefore, has a comparative advantage in the production of jeans, and has a comparative advantage in the production of rye. 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 jeans will produce million pairs per month, and the country that produces rye will produce million bushels per month. In the following table, enter each country's production decision on the third row of the table (marked "Production").
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Consider two neighboring island countries called Bellissima 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)
Bellissima
10
Dolorium
4
16
Initially, suppose Bellissima 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, Bellissima produces 5 million
pairs of jeans and 30 million bushels of rye, and Dolorium produces 12 million pairs of jeans and 16 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.
Bellissima's opportunity cost of producing 1 pair of jeans is
of rye, and Dolorium's opportunity cost of producing 1 pair of jeans is
of rye. Therefore,
has a comparative advantage in the production of jeans, and
has a comparative
advantage in the production of rye.
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 jeans will produce
million pairs per month, and the country that produces rye will produce
million bushels per month.
In the following table, enter each country's production decision on the third row of the table (marked "Production").
Transcribed Image Text:Suppose the country that produces jeans trades 13 million pairs of jeans to the other country in exchange for 39 million bushels of rye.
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 jeans was 17 million pairs per month, and the total production of rye was 46 million
bushels per month. Because of specialization, the total production of jeans has increased by
million pairs per month, and the total production
of rye has increased by
million bushels per month.
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").
Bellissima
Dolorium
Jeans
Rye
Jeans
Rye
(Millions of pairs)
(Millions of bushels)
(Millions of pairs)
(Millions of bushels)
Without Trade
Production
30
12
16
Consumption
5
30
12
16
With Trade
Production
Trade action
Consumption
Gains from Trade
Increase in Consumption
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