Consider two neighboring island countries called Contente and Felicidad. 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) Contente 12 24 Felicidad 8 32 Initially, suppose Contente uses 1 million hours of labor per month to produce jeans and 3 million hours per month to produce rye, while Felicidad uses 3 million hours of labor per month to produce jeans and 1 million hours per month to produce rye. Consequently, Contente produces 12 million pairs of jeans and 72 million bushels of rye, and Felicidad 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| |of rye. Therefore, |of rye, and Felicidad's opportunity cost of producing 1 pair of jeans is |has a comparative has a comparative advantage in the production of jeans, and 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 Contente and Felicidad. 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) Contente 12 24 Felicidad 8 32 Initially, suppose Contente uses 1 million hours of labor per month to produce jeans and 3 million hours per month to produce rye, while Felicidad uses 3 million hours of labor per month to produce jeans and 1 million hours per month to produce rye. Consequently, Contente produces 12 million pairs of jeans and 72 million bushels of rye, and Felicidad 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| |of rye. Therefore, |of rye, and Felicidad's opportunity cost of producing 1 pair of jeans is |has a comparative has a comparative advantage in the production of jeans, and 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 Contente and Felicidad. 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)
Contente
12
24
Felicidad
8
32
Initially, suppose Contente uses 1 million hours of labor per month to produce jeans and 3 million hours per month to produce rye, while Felicidad uses
3 million hours of labor per month to produce jeans and 1 million hours per month to produce rye. Consequently, Contente produces 12 million pairs of
jeans and 72 million bushels of rye, and Felicidad 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|
|of rye. Therefore,
|of rye, and Felicidad's opportunity cost of producing 1 pair of jeans is
|has a comparative
has a comparative advantage in the production of jeans, and
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").
![Suppose the country that produces jeans trades 26 million pairs of jeans to the other country in exchange for 78 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 36 million pairs per month, and the total production of rye was 104 million
]million pairs per month, and the total production
bushels per month. Because of specialization, the total production of jeans has increased by
million bushels per month.
of rye has increased by
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").
Contente
Felicidad
Jeans
Rye
Jeans
Rye
(Millions of pairs) (Millions of bushels) (Millions of pairs) (Millions of bushels)
Without Trade
Production
12
72
24
32
Consumption
12
72
24
32
With Trade
Production
Trade action
Consumption
Gains from Trade
Increase in Consumption](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F46029127-96a5-4dc2-997a-3c090d1aab2d%2Ffdfc2d36-34e1-4766-a46d-62d85b3db3f3%2F0rurje6_processed.png&w=3840&q=75)
Transcribed Image Text:Suppose the country that produces jeans trades 26 million pairs of jeans to the other country in exchange for 78 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 36 million pairs per month, and the total production of rye was 104 million
]million pairs per month, and the total production
bushels per month. Because of specialization, the total production of jeans has increased by
million bushels per month.
of rye has increased by
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").
Contente
Felicidad
Jeans
Rye
Jeans
Rye
(Millions of pairs) (Millions of bushels) (Millions of pairs) (Millions of bushels)
Without Trade
Production
12
72
24
32
Consumption
12
72
24
32
With Trade
Production
Trade action
Consumption
Gains from Trade
Increase in Consumption
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