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Consider two neighboring island countries called Euphoria and Arcadia. 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 Country (Bushels per hour of labor) Euphoria 5 Arcadia 8 Jeans (Pairs per hour of labor) 20 16 Initially, suppose Arcadia 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, Euphoria produces 15 million bushels of corn and 20 million pairs of jeans, and Arcadia produces 8 million bushels of corn and 48 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. Euphoria's opportunity cost of producing 1 bushel of corn is of jeans. Therefore, advantage in the production of jeans. of jeans, and Arcadia's opportunity cost of producing 1 bushel of corn is has a comparative has a comparative advantage in the production of corn, and

Consider two neighboring island countries called Euphoria and Arcadia. 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 Country (Bushels per hour of labor) Euphoria 5 Arcadia 8 Jeans (Pairs per hour of labor) 20 16 Initially, suppose Arcadia 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, Euphoria produces 15 million bushels of corn and 20 million pairs of jeans, and Arcadia produces 8 million bushels of corn and 48 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. Euphoria's opportunity cost of producing 1 bushel of corn is of jeans. Therefore, advantage in the production of jeans. of jeans, and Arcadia's opportunity cost of producing 1 bushel of corn is has a comparative has a comparative advantage in the production of corn, and

Brief Principles of Macroeconomics (MindTap Course List)
Brief Principles of Macroeconomics (MindTap Course List)
8th Edition
ISBN:9781337091985
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter3: Interdependence And The Gains Rrom Trade
Section: Chapter Questions
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5. Comparative advantage and gains from trade Consider two neighboring island countries called Euphoria and Arcadia. 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) Euphoria 20 Arcadia 16 5 8 Initially, suppose Arcadia 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, Euphoria produces 15 million bushels of corn and 20 million pairs of jeans, and Arcadia produces 8 million bushels of corn and 48 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. of jeans, and Arcadia's opportunity cost of producing 1 bushel of corn is has a comparative advantage in the production of corn, and has a comparative Euphoria's opportunity cost of producing 1 bushel of corn is of 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. In this case, the country that produces corn will produce million bushels per month, and the country that produces jeans will produce million pairs per month.
Transcribed Image Text:5. Comparative advantage and gains from trade Consider two neighboring island countries called Euphoria and Arcadia. 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) Euphoria 20 Arcadia 16 5 8 Initially, suppose Arcadia 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, Euphoria produces 15 million bushels of corn and 20 million pairs of jeans, and Arcadia produces 8 million bushels of corn and 48 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. of jeans, and Arcadia's opportunity cost of producing 1 bushel of corn is has a comparative advantage in the production of corn, and has a comparative Euphoria's opportunity cost of producing 1 bushel of corn is of 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. In this case, the country that produces corn will produce million bushels per month, and the country that produces jeans will produce million pairs per month.
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