3. Gains from tradeConsider two neighboring island countries called Euphoria and Contente. They each have 4 million labor hours available per month that they can useto 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.CountryEuphoriaContenteJeans(Pairs per hour of labor)812Rye(Bushels per hour of labor)3224Initially, suppose Contente uses 1 million hours of labor per month to produce jeans and 3 million hours per month to produce rye, while Euphoriauses 3 million hours of labor per month to produce jeans and 1 million hours per month to produce rye. Consequently, Euphoria produces 24 millionpairs of jeans and 32 million bushels of rye, and Contente produces 12 million pairs of jeans and 72 million bushels of rye. Assume there are no othercountries willing to trade goods, so, in the absence of trade between these two countries, each country consumes the amount of jeans and rye itproduces.of rye, and Contente's opportunity cost of producing 1 pair of jeans ishas a comparative advantage in the production of jeans, andhas a comparativeEuphoria's opportunity cost of producing 1 pair of jeans isof rye. Therefore,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. Inthis case, the country that produces jeans will producemillion pairs per month, and the country that produces rye will producemillion 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. 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," andenter 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 millionbushels per month. Because of specialization, the total production of jeans has increased bymillion pairs per month, and the total productionof rye has increased bymillion bushels per month.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 thetable. In the following table, enter this difference in the boxes across the last row (marked "Increase in Consumption").Without TradeProductionConsumptionWith TradeProductionTrade actionConsumptionGains from TradeIncrease in ConsumptionJeans(Millions of pairs)24Euphoria24Rye(Millions of bushels)3232ContenteJeans(Millions of pairs)1212Rye(Millions of bushels)7272

Gain from exchange alludes to additional production and utilization impacts that nations can…

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 bushels per month. Because of specialization, the total production of jeans has increased by million pairs per month, and the total production of rye has increased by million bushels per month. 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"). Without Trade Production Consumption With Trade Production Trade action Consumption Gains from Trade Increase in Consumption Jeans (Millions of pairs) 24 Euphoria 24 Rye (Millions of bushels) 32 32 Contente Jeans (Millions of pairs) 12 12 Rye (Millions of bushels) 72 72

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC