Consider two neighboring island countries called Euphoria and Bellissima. 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. Country Rye Jeans (Bushels per hour of labor) (Pairs per hour of labor) Euphoria 4 16 Bellissima 6 12   Initially, suppose Bellissima 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, Euphoria produces 12 million bushels of rye and 16 million pairs of jeans, and Bellissima produces 6 million bushels of rye and 36 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.   Euphoria's opportunity cost of producing 1 bushel of rye is  --  of jeans, and Bellissima'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.   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 rye will produce -- million bushels per week, and the country that produces jeans will produce -- million pairs 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 rye trades 14 million bushels of rye to the other country in exchange for 42 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 line marked “Consumption.”   When the two countries did not specialize, the total production of rye was 18 million bushels per week, and the total production of jeans was 52 million pairs per week. Because of specialization, the total production of rye has increased by -- million bushels per week, and the total production of jeans has increased by -- million pairs per week.   Because the two countries produce more rye 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”).

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
icon
Related questions
Question
Consider two neighboring island countries called Euphoria and Bellissima. 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.
Country
Rye
Jeans
(Bushels per hour of labor)
(Pairs per hour of labor)
Euphoria 4 16
Bellissima 6 12
 
Initially, suppose Bellissima 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, Euphoria produces 12 million bushels of rye and 16 million pairs of jeans, and Bellissima produces 6 million bushels of rye and 36 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.
 
Euphoria's opportunity cost of producing 1 bushel of rye is  --  of jeans, and Bellissima'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.
 
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 rye will produce -- million bushels per week, and the country that produces jeans will produce -- million pairs 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 rye trades 14 million bushels of rye to the other country in exchange for 42 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 line marked “Consumption.”
 
When the two countries did not specialize, the total production of rye was 18 million bushels per week, and the total production of jeans was 52 million pairs per week. Because of specialization, the total production of rye has increased by -- million bushels per week, and the total production of jeans has increased by -- million pairs per week.
 
Because the two countries produce more rye 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”).
 
 
Euphoria
Bellissima
Rye
Jeans
Rye
Jeans
(Millions of bushels)
(Millions of pairs)
(Millions of bushels)
(Millions of pairs)
Without Trade
Production
12
16
6.
36
Consumption
12
16
6.
36
With Trade
Production
Trade action
Consumption
Gains from Trade
Increase in Consumption
Transcribed Image Text:Euphoria Bellissima Rye Jeans Rye Jeans (Millions of bushels) (Millions of pairs) (Millions of bushels) (Millions of pairs) Without Trade Production 12 16 6. 36 Consumption 12 16 6. 36 With Trade Production Trade action Consumption Gains from Trade Increase in Consumption
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 3 steps

Blurred answer
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:
9780190931919
Author:
NEWNAN
Publisher:
Oxford University Press
Principles of Economics (12th Edition)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education