3. Gains from tradeConsider two neighboring island countries called Bellissima and Felicidad. They each have 4 million labor hours available per week that they can use toproduce rye, jeans, or a combination of both. The following table shows the amount of rye or jeans that can be produced using 1 hour of labor.CountryBellissimaFelicidadRye(Bushels per hour of labor)85Jeans(Pairs per hour of labor)1620Initially, suppose Bellissima uses 1 million hours of labor per week to produce rye and 3 million hours per week to produce jeans, while Felicidad uses3 million hours of labor per week to produce rye and 1 million hours per week to produce jeans. Consequently, Bellissima produces 8 million bushels ofrye and 48 million pairs of jeans, and Felicidad produces 15 million bushels of rye and 20 million pairs of jeans. Assume there are no other countrieswilling to trade goods, so, in the absence of trade between these two countries, each country consumes the amount of rye and jeans it produces.of jeans, and Felicidad's opportunity cost of producing 1 bushel of rye ishas a comparative advantage in the production of rye, andhas a comparativeBellissima's opportunity cost of producing 1 bushel of rye isof jeans. Therefore,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. Inmillion bushels per week, and the country that produces jeans will producethis case, the country that produces rye will producemillion pairs per week.In the following table, enter each country's production decision on the third row of the table (marked "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 following table, select the amount of each good that each country exports and imports in the boxes across the row marked "Trade Action," and 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," andenter each country's final consumption of each good on the line marked "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 millionpairs per week. Because of specialization, the total production of rye has increased bymillion bushels per week, and the total production ofjeans has increased bymillion 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-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").Without TradeProductionConsumptionWith TradeProductionTrade actionConsumptionGains from TradeIncrease in ConsumptionBellissimaRye(Millions of bushels)88Jeans(Millions of pairs)4848FelicidadRye(Millions of bushels)1515Jeans(Millions of pairs)2020

Given information: There are two countries, i.e., Bellissima and Felicidad. And both produces two…

Consider two neighboring island countries called Bellissima and Felicidad. 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 amount of rye or jeans that can be produced using 1 hour of labor. Country Bellissima Felicidad Rye Jeans (Bushels per hour of labor) (Pairs per hour of labor) 8 16 5 20 Initially, suppose Bellissima uses 1 million hours of labor per week to produce rye and 3 million hours per week to produce jeans, while Felicidad uses 3 million hours of labor per week to produce rye and 1 million hours per week to produce jeans. Consequently, Bellissima produces 8 million bushels of rye and 48 million pairs of jeans, and Felicidad produces 15 million bushels of rye and 20 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 rye and jeans it produces.

Consider two neighboring island countries called Bellissima and Felicidad. 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 amount of rye or jeans that can be produced using 1 hour of labor. Country Bellissima Felicidad Rye Jeans (Bushels per hour of labor) (Pairs per hour of labor) 8 16 5 20 Initially, suppose Bellissima uses 1 million hours of labor per week to produce rye and 3 million hours per week to produce jeans, while Felicidad uses 3 million hours of labor per week to produce rye and 1 million hours per week to produce jeans. Consequently, Bellissima produces 8 million bushels of rye and 48 million pairs of jeans, and Felicidad produces 15 million bushels of rye and 20 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 rye and jeans it produces.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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