4. Comparative advantage and gains from tradeConsider two neighboring island countries called Contente and Euphoria. 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.RyeJeansCountry(Bushels per hour of labor) (Pairs per hour of labor)Contente816Euphoria520Initially, suppose Contente uses 1 million hours of labor per week to produce rye and 3 million hours per week to produce jeans, while Euphoria uses 3million hours of labor per week to produce rye and 1 million hours per week to produce jeans. Consequently, Contente produces 8 million bushels ofrye and 48 million pairs of jeans, and Euphoria 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.Contente's opportunity cost of producing 1 bushel of rye isof jeans, and Euphoria's opportunity cost of producing 1 bushel of rye isof jeans. Therefore,has a comparative advantage in the production of rye, andhas a comparativein the production of jeans.1/2 pair1/4 pair at each country completely specializes in the production of the good in which it has a comparative advantage, producing only that good. Inhe country that produces rye will produce2 pairsmillion bushels per week, and the country that produces jeans will produceper week.4 pairs 4. Comparative advantage and gains from tradeConsider two neighboring island countries called Contente and Euphoria. 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.RyeJeansCountry(Bushels per hour of labor) (Pairs per hour of labor)Contente816Euphoria520Initially, suppose Contente uses 1 million hours of labor per week to produce rye and 3 million hours per week to produce jeans, while Euphoria uses 3million hours of labor per week to produce rye and 1 million hours per week to produce jeans. Consequently, Contente produces 8 million bushels ofrye and 48 million pairs of jeans, and Euphoria 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.Contente's opportunity cost of producing 1 bushel of rye isof jeans, and Euphoria's opportunity cost of producing 1 bushel of rye isof jeans. Therefore,has a comparative advantage in the production of rye, andhas a comparativeadvantage in the production of jeans.ContenteSuppose that each country completely specializes in the production of the good in which it has a comparative a Euphoria roducing only that good. Inthis case, the country that produces rye will producemillion bushels per week, and the country that plouacc- jeans will producemillion pairs per week.

Given Country Rye (Bushels per hour of labor) Jeans (Pairs per hours of labor ) Contente 8 16…

Consider two neighboring island countries called Contente and Euphoria. 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. Rye Jeans Country (Bushels per hour of labor) (Pairs per hour of labor) Contente 16 Euphoria 5 20 Initially, suppose Contente uses 1 million hours of labor per week to produce rye and 3 million hours per week to produce jeans, while Euphoria uses 3 million hours of labor per week to produce rye and 1 million hours per week to produce jeans. Consequently, Contente produces 8 million bushels of rye and 48 million pairs of jeans, and Euphoria 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. Contente's opportunity cost of producing 1 bushel of rye is of jeans, and Euphoria's opportunity cost of producing 1 bushel of rye is of jeans. Therefore, has a comparative advantage in the production of rye, and has a comparative advantage in the production of jeans. Contente Suppose that each country completely specializes in the production of the good in which it has a comparative a Euphoria roducing only that good. In this case, the country that produces rye will produce ]million bushels per week, and the country that plouuceyeuhs will produce million pairs per week.

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC