Unsure how to solve properly Consider two neighboring island countries called Contente and Dolorium. They each have 4 millionlabor hours available per week 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.JeansRyeCountry (Pairs per hour of labor) (Bushels per hour of labor)Contente12Dolorium8Initially, suppose Contente uses 1 million hours of labor per week to produce jeans and 3 millionhours per week to produce rye, while Dolorium uses 3 million hours of labor per week to producejeans and 1 million hours per week to produce rye. Consequently, Contente produces 12 millionpairs of jeans and 72 million bushels of rye, and Dolorium produces 24 million pairs of jeans and32 million bushels of rye. Assume there are no other countries willing to trade goods, so, in theabsence of trade between these two countries, each country consumes the amount of jeans andrye it produces.Contente's opportunity cost of producing 1 pair of jeans isopportunity cost of producing 1 pair of jeans iscomparative advantage in the production of rye.2432has a comparative advantage in the production of jeans, andof rye, and Dolorium'sof rye. Therefore,Suppose that each country completely specializes in the production of the good in which it has acomparative advantage, producing only that good. In this case, the country that produces jeanswill producemillion pairs per week, and the country that produces rye will producemillion bushels 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 jeans trades 26 million pairs of jeans to the other country inexchange for 78 million bushels of rye.In the following table, select the amount of each good that each country exports and imports inthe boxes across the row marked "Trade Action," and enter each country's final consumption ofeach good on the line marked "Consumption."JeansWhen the two countries did not specialize, the total production of jeans was 36 million pairs perweek, and the total production of rye was 104 million bushels per week. Because of specialization,the total production of jeans has increased bymillion pairs per week, and the totalproduction of rye has increased bymillion bushels per week.ContenteBecause the two countries produce more jeans and more rye under specialization, each country isable to gain from trade.Ryehas aCalculate the gains from trade-that is, the amount by which each country has increased itsconsumption of each good relative to the first row of the table. In the following table, enter thisdifference in the boxes across the last row (marked "Increase in Consumption").JeansDoloriumRye Because the two countries produce more jeans and more rye under specialization, each country isable to gain from trade.Calculate the gains from trade-that is, the amount by which each country has increased itsconsumption of each good relative to the first row of the table. In the following table, enter thisdifference in the boxes across the last row (marked "Increase in Consumption").Without TradeProductionConsumptionWith TradeProductionTrade ActionConsumptionGains from TradeIncrease inConsumptionContenteJeans(Millions ofpairs)1212Rye(Millions ofbushels)7272DoloriumJeans(Millions ofpairs)2424Rye(Millions ofbushels)3232

In Contente, 12 pairs of jeans can be produced in 1 hour of labor or 24 bushels of rye can be…

Consider two neighboring island countries called Contente and Dolorium. They each have 4 million labor hours available per week 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 12' Dolorium 8 24 32 Initially, suppose Contente uses 1 million hours of labor per week to produce jeans and 3 million hours per week to produce rye, while Dolorium uses 3 million hours of labor per week to produce jeans and 1 million hours per week to produce rye. Consequently, Contente produces 12 million pairs of jeans and 72 million bushels of rye, and Dolorium produces 24 million pairs of jeans and 32 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. Contente's opportunity cost of producing 1 pair of jeans is opportunity cost of producing 1 pair of jeans is of rye. Therefore, has a comparative advantage in the production of jeans, and comparative advantage in the production of rye. of rye, and Dolorium's has a 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 week, and the country that produces rye will produce million bushels per week.

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC