# Gains from TradeSuppose there exist two imaginary countries, Glacier and Sequoia. Their labor forces are each capable of supplying four million hours per day that can be used to produce pistachios, chinos, or some combination of the two. The following table shows the amount of pistachios or chinos that can be produced by one hour of labor.| Country | Pistachios (Pounds per hour of labor) | Chinos (Pairs per hour of labor) ||---------|----------------------------------------|-----------------------------------|| Glacier | 12 | 24 || Sequoia | 8 | 32 |Suppose that initially Glacier uses 1 million hours of labor per day to produce pistachios and 3 million hours per day to produce chinos, while Sequoia uses 3 million hours of labor per day to produce pistachios and 1 million hours per day to produce chinos. As a result, Glacier produces 12 million pounds of pistachios and 72 million pairs of chinos, and Sequoia produces 24 million pounds of pistachios and 32 million pairs of chinos. Assume there are no other countries willing to engage in trade, so, in the absence of trade between these two countries, each country consumes the amount of pistachios and chinos it produces.Glacier's opportunity cost of producing 1 pound of pistachios is ___ of chinos, and Sequoia's opportunity cost of producing 1 pound of pistachios is ___ of chinos. Therefore, ___ has a comparative advantage in the production of pistachios, and ___ has a comparative advantage in the production of chinos.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 pistachios will produce ___ million pounds per day, and the country that produces chinos will produce ___ million pairs per day. # Understanding Trade and Specialization Through a Hypothetical Scenario### Instructions for the Table#### Step 1: Production DecisionsIn the following table, enter each country's production decision on the third row of the table (marked “Production”).#### Step 2: Trade ScenarioSuppose the country that produces pistachios trades 26 million pounds of pistachios to the other country in exchange for 78 million pairs of chinos.#### Step 3: Trade Actions and ConsumptionIn 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.”### Analysis of Specialization Effects#### Without SpecializationWhen the two countries did not specialize, the total production of pistachios was 36 million pounds per day, and the total production of chinos was 104 million pairs per day.#### With SpecializationBecause of specialization, the total production of pistachios has increased by [Blank] million pounds per day, and the total production of chinos has increased by [Blank] million pairs per day.Because the two countries produce more pistachios and more chinos under specialization, each country is able to gain from trade.### Calculating Gains from TradeCalculate 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”).### Table for Data Input| | Glacier | | | Sequoia | | ||------------------|---------|------------|-----------|---------|------------|-----------|| | Pistachios | Chinos | Pistachios | Chinos || | (Millions of pounds) | (Millions of pairs) | (Millions of pounds) | (Millions of pairs) || Without Trade | | | | | | || Production | 12 | 72 | 24 | 32 || Consumption | 12 | 72 | 24 | 32 || | | | | | | || With Trade | | | | | | |

Comparative advantage refers to the ability to produce goods and services at a lower opportunity…

In the following table, enter each country's production decis on the third row of the table (marked "Production"). Suppose the country that produces pistachios trades 26 million pounds of pistachios to the other country in exchar for 78 million pairs of chinos. In the following table, select the amount of each good that each country exports and imports in the boxes across the ro marked "Trade Action," and enter each country's final consumption of each good on the line marked "Consumptio When the two countries did not specialize, the total production of pistachios was 36 million pounds per day, a the total production of chinos was 104 million pairs per da Because of specialization, the total production of pistachi has increased by million pounds per day, and the total production of chinos has increased by million pain per day. Because the two countries produce more pistachios and more chinos under specialization, each country is able to g 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, en this difference in the boxes across the last row (marked "Increase in Consumption"). Without Trade Production Consumption With Trade Production Trade action Consumption Gains from Trade Increase in Consumption Pistachios (Millions of pounds) 12 Glacier 12 Chinos (Millions of pairs) 72 72 Sequoia Pistachios (Millions of pounds) 24 24 Chinos (Millions of pairs) 32 32 A-Z

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC