Euphoria Contente Rye (Millions of bushels) Jeans Rye (Millions of bushels) Jeans (Millions of pairs) (Millions of pairs) Without Trade Production 15 20 8 48 Consumption 15 20 8 48 With Trade Production Trade action Consumption Gains from Trade Increase in Consumption

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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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
Contente
Rye
(Millions of
bushels)
Jeans
(Millions of
pairs)
Rye
(Millions of
bushels)
Jeans
(Millions of
pairs)
Without Trade
Production
15
20
8
48
Consumption
15
20
8
48
With Trade
Production
Trade action
Consumption
Gains from Trade
Increase in
Consumption
Transcribed Image Text: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 Contente Rye (Millions of bushels) Jeans (Millions of pairs) Rye (Millions of bushels) Jeans (Millions of pairs) Without Trade Production 15 20 8 48 Consumption 15 20 8 48 With Trade Production Trade action Consumption Gains from Trade Increase in Consumption
Consider two neighboring island countries called Euphoria and Contente. They each have 4 million
labor hours available per month 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)
Euphoria
5
20
Contente
8
16
Initially, suppose Contente uses 1 million hours of labor per month to produce rye and 3 million
hours per month to produce jeans, while Euphoria uses 3 million hours of labor per month to
produce rye and 1 million hours per month to produce jeans. Consequently, Euphoria produces 15
million bushels of rye and 20 million pairs of jeans, and Contente produces 8 million bushels of rye
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 rye and
jeans it produces.
of jeans, and Contente's
Euphoria's opportunity cost of producing 1 bushel of rye is
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 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 rye trades 18 million bushels of rye 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 line marked "Consumption."
When the two countries did not specialize, the total production of rye 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 rye 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 rye and more jeans under specialization, each country is
able to gain from trade.
Transcribed Image Text:Consider two neighboring island countries called Euphoria and Contente. They each have 4 million labor hours available per month 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) Euphoria 5 20 Contente 8 16 Initially, suppose Contente uses 1 million hours of labor per month to produce rye and 3 million hours per month to produce jeans, while Euphoria uses 3 million hours of labor per month to produce rye and 1 million hours per month to produce jeans. Consequently, Euphoria produces 15 million bushels of rye and 20 million pairs of jeans, and Contente produces 8 million bushels of rye 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 rye and jeans it produces. of jeans, and Contente's Euphoria's opportunity cost of producing 1 bushel of rye is 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 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 rye trades 18 million bushels of rye 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 line marked "Consumption." When the two countries did not specialize, the total production of rye 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 rye 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 rye and more jeans under specialization, each country is able to gain from trade.
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