Suppose there exist two imaginary countries, Denali and Congaree. Their labor forces are each capable of supplying four million hours per week that can be used to produce almonds, shorts, or some combination of the two. The following table shows the amount of almonds or shorts that can be produced by one hour of labor. Country Almonds Shorts (Pounds per hour of labor) (Pairs per hour of labor) Denali 6 12 Congaree 4 16 Suppose that initially Denali uses 1 million hours of labor per week to produce almonds and 3 million hours per week to produce shorts, while Congaree uses 3 million hours of labor per week to produce almonds and 1 million hours per week to produce shorts. As a result, Denali produces 6 million pounds of almonds and 36 million pairs of shorts, and Congaree produces 12 million pounds of almonds and 16 million pairs of shorts. 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 almonds and shorts it produces. Denali's opportunity cost of producing 1 pound of almonds is1/2 pair of shorts, and Congaree's opportunity cost of producing 1 pound of almonds is1/4 pair of shorts. Therefore,Denali has a comparative advantage in the production of almonds, andCongaree has a comparative advantage in the production of shorts. 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 almonds will produce million pounds per week, and the country that produces shorts 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 almonds trades 14 million pounds of almonds to the other country in exchange for 42 million pairs of shorts. 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 almonds was 18 million pounds per week, and the total production of shorts was 52 million pairs per week. Because of specialization, the total production of almonds has increased by million pounds per week, and the total production of shorts has increased by million pairs per week. Because the two countries produce more almonds and more shorts 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”). Denali Congaree Almonds Shorts Almonds Shorts (Millions of pounds) (Millions of pairs) (Millions of pounds) (Millions of pairs) Without Trade Production 6 36 12 16 Consumption 6 36 12 16 With Trade Production Trade action Consumption Gains from Trade Increase in Consumption

Suppose there exist two imaginary countries, Denali and Congaree. Their labor forces are each capable of supplying four million hours per week that can be used to produce almonds, shorts, or some combination of the two. The following table shows the amount of almonds or shorts that can be produced by one hour of labor. Country Almonds Shorts (Pounds per hour of labor) (Pairs per hour of labor) Denali 6 12 Congaree 4 16 Suppose that initially Denali uses 1 million hours of labor per week to produce almonds and 3 million hours per week to produce shorts, while Congaree uses 3 million hours of labor per week to produce almonds and 1 million hours per week to produce shorts. As a result, Denali produces 6 million pounds of almonds and 36 million pairs of shorts, and Congaree produces 12 million pounds of almonds and 16 million pairs of shorts. 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 almonds and shorts it produces. Denali's opportunity cost of producing 1 pound of almonds is1/2 pair of shorts, and Congaree's opportunity cost of producing 1 pound of almonds is1/4 pair of shorts. Therefore,Denali has a comparative advantage in the production of almonds, andCongaree has a comparative advantage in the production of shorts. 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 almonds will produce million pounds per week, and the country that produces shorts 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 almonds trades 14 million pounds of almonds to the other country in exchange for 42 million pairs of shorts. 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 almonds was 18 million pounds per week, and the total production of shorts was 52 million pairs per week. Because of specialization, the total production of almonds has increased by million pounds per week, and the total production of shorts has increased by million pairs per week. Because the two countries produce more almonds and more shorts 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”). Denali Congaree Almonds Shorts Almonds Shorts (Millions of pounds) (Millions of pairs) (Millions of pounds) (Millions of pairs) Without Trade Production 6 36 12 16 Consumption 6 36 12 16 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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Question

Country	Almonds	Shorts
(Pounds per hour of labor)	(Pairs per hour of labor)
Denali	6	12
Congaree	4	16

Suppose that initially Denali uses 1 million hours of labor per week to produce almonds and 3 million hours per week to produce shorts, while Congaree uses 3 million hours of labor per week to produce almonds and 1 million hours per week to produce shorts. As a result, Denali produces 6 million pounds of almonds and 36 million pairs of shorts, and Congaree produces 12 million pounds of almonds and 16 million pairs of shorts. 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 almonds and shorts it produces.

Denali's opportunity cost of producing 1 pound of almonds is1/2 pair of shorts, and Congaree's opportunity cost of producing 1 pound of almonds is1/4 pair of shorts. Therefore,Denali has a comparative advantage in the production of almonds, andCongaree has a comparative advantage in the production of shorts.

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 almonds will produce

million pounds per week, and the country that produces shorts 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 almonds trades 14 million pounds of almonds to the other country in exchange for 42 million pairs of shorts.

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 almonds was 18 million pounds per week, and the total production of shorts was 52 million pairs per week. Because of specialization, the total production of almonds has increased by

million pounds per week, and the total production of shorts has increased by

million pairs per week.

Because the two countries produce more almonds and more shorts 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”).

	Denali	Congaree
Almonds	Shorts	Almonds	Shorts
(Millions of pounds)	(Millions of pairs)	(Millions of pounds)	(Millions of pairs)
Without Trade
Production	6	36	12	16
Consumption	6	36	12	16
With Trade
Production
Trade action
Consumption
Gains from Trade
Increase in Consumption

Definition Video Definition Ability of a country to produce goods and services at a lower opportunity cost compared to other countries. Here, opportunity cost refers to the forgone units of one good in order to produce one more unit of another good. For example, the opportunity cost of producing good X in country A is 2Y and in country B is 1.25Y. Country B has a lower opportunity cost of producing good X than country A. Therefore, country B has a comparative advantage in the production of good X. Video

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