Consider two neighboring island countries called Arcadia and Dolorium. They each have 4 million labor hours available per week that they can use to produce jeans, corn, or a combination of both. The following table shows the amount of jeans or corn that can be produced using 1 hour of labor. Country Arcadia Dolorium Jeans Corn (Pairs per hour of labor) (Bushels per hour of labor) 8 16 5 20 Initially, suppose Arcadia uses 1 million hours of labor per week to produce jeans and 3 million hours per week to produce corn, while Dolorium uses 3 million hours of labor per week to produce jeans and 1 million hours per week to produce corn. Consequently, Arcadia produces 8 million pairs of jeans and 48 million bushels of corn, and Dolorium produces 15 million pairs of jeans and 20 million bushels of corn. 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 jeans and corn it produces. Arcadia's opportunity cost of producing 1 pair of jeans is of corn. Therefore, advantage in the production of corn. of corn, and Dolorium's opportunity cost of producing 1 pair of jeans is has a comparative advantage the production of jeans, and has a comparative

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

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Chapter1: Making Economics Decisions

Section: Chapter Questions

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Consider two neighboring island countries called Arcadia and Dolorium. They each have 4 million labor hours available per week that they can use to
produce jeans, corn, or a combination of both. The following table shows the amount of jeans or corn that can be produced using 1 hour of labor.
Jeans
Corn
Country
(Pairs per hour of labor)
(Bushels per hour of labor)
Arcadia
8.
16
Dolorium
20
Initially, suppose Arcadia uses 1 million hours of labor per week to produce jeans and 3 million hours per week to produce corn, while Dolorium uses 3
million hours of labor per week to produce jeans and 1 million hours per week to produce corn. Consequently, Arcadia produces 8 million pairs of jeans
and 48 million bushels of corn, and Dolorium produces 15 million pairs of jeans and 20 million bushels of corn. 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 jeans and corn it produces.
Arcadia's opportunity cost of producing 1 pair of jeans is
of corn, and Dolorium's opportunity cost of producing 1 pair of jeans is
of corn. Therefore,
has a comparative advantage in the production of jeans, and
has a comparative
advantage in the production of corn.
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 jeans will produce
million pairs per week, and the country that produces corn will produce
million bushels per week.

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Since you have posted multiple sub-parts, we are answering the first three for you. If you want answer to a specific question, please mention that or post that as another question.

Opportunity cost is the cost of next best alternative. It is the foregone benefit that could have been derived by the option that is not chosen.

Comparative advantage occurs when an individual or a country can produce a good at lower opportunity cost than another individual or country.

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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 jeans will produce

million pairs per week, and the country that produces corn will produce

million bushels per week.

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