Consider two neighboring island countries called Contente and Euphoria. They each have 4 million labor hours available per month that they can use to produce corn, jeans, or a combination of both. The following table shows the amount of corn or jeans that can be produced using 1 hour of labor. Corn Jeans Country (Bushels per hour of labor) (Pairs per hour of labor) Contente 8. 16 Euphoria 20 Initially, suppose Contente uses 1 million hours of labor per month to produce corn and 3 million hours per month to produce jeans, while Euphoria uses 3 million hours of labor per month to produce corn and 1 million hours per month to produce jeans. Consequently, Contente produces 8 million bushels of corn and 48 million pairs of jeans, and Euphoria produces 15 million bushels of corn 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 corn and jeans it produces. Contente's opportunity cost of producing 1 bushel of corn is v of jeans, and Euphoria's opportunity cost of producing 1 bushel of corn is v of jeans. Therefore, has a comparative advantage in the production of corn, and has a comparative 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. In this case, the country that produces corn will produce million bushels per month, and the country that produces jeans will produce 20r Clear
Consider two neighboring island countries called Contente and Euphoria. They each have 4 million labor hours available per month that they can use to produce corn, jeans, or a combination of both. The following table shows the amount of corn or jeans that can be produced using 1 hour of labor. Corn Jeans Country (Bushels per hour of labor) (Pairs per hour of labor) Contente 8. 16 Euphoria 20 Initially, suppose Contente uses 1 million hours of labor per month to produce corn and 3 million hours per month to produce jeans, while Euphoria uses 3 million hours of labor per month to produce corn and 1 million hours per month to produce jeans. Consequently, Contente produces 8 million bushels of corn and 48 million pairs of jeans, and Euphoria produces 15 million bushels of corn 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 corn and jeans it produces. Contente's opportunity cost of producing 1 bushel of corn is v of jeans, and Euphoria's opportunity cost of producing 1 bushel of corn is v of jeans. Therefore, has a comparative advantage in the production of corn, and has a comparative 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. In this case, the country that produces corn will produce million bushels per month, and the country that produces jeans will produce 20r Clear
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:3. Gains from trade
Consider two neighboring island countries called Contente and Euphoria. They each have 4 million labor hours available per month that they can use
to produce corn, jeans, or a combination of both. The following table shows the amount of corn or jeans that can be produced using 1 hour of labor.
Corn
Jeans
Country
(Bushels per hour of labor)
(Pairs per hour of labor)
Contente
16
Euphoria
20
Initially, suppose Contente uses 1 million hours of labor per month to produce corn and 3 million hours per month to produce jeans, while Euphoria
uses 3 million hours of labor per month to produce corn and 1 million hours per month to produce jeans. Consequently, Contente produces 8 million
bushels of corn and 48 million pairs of jeans, and Euphoria produces 15 million bushels of corn 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 corn and jeans
it produces.
Contente's opportunity cost of producing 1 bushel of corn is
of jeans, and Euphoria's opportunity cost of producing 1 bushel of corn is
v of jeans. Therefore,
v has a comparative advantage in the production of corn, and
has a comparative
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. In
this case, the country that produces corn will produce
million bushels per month, and the country that produces jeans will produce
30°F Clear
Transcribed Image Text: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 corm will produce
million bushels per month, and the country that produces jeans will produce
million pairs per month.
In the following table, enter each country's production decision on the third row of the table (marked "Production".
Suppose the country that produces corn trades 18 million bushels of corn 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
enter each country's final consumption of each good on the Iline marked "Consumption."
When the two countries did not specialize, the total production of corn was 23 million bushels per month, and the total production of jeans was 68
million pairs per month. Because of specialization, the total production of corn has increased by
million bushels per month, and the total
production of jeans has increased by
million pairs per month.
Because the two countries produce more corn 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 the
table. In the following table, enter this difference in the boxes across the last row (marked "Increase in Consumption").
Contente
Eunhoria
30°F Clear
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Disclaimer :- as you posted multipart questions we are supposed to solve the first 3 questions only as per guidelines.
Comparative advantage means a country is specialized in Production of some goods in terms of opportunity cost than that of trading countries . .. .
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