There are two parts to this question. The first question shows screenshots of the given information and fill in the blank sentences. The second part uses those answers to fill in the table in the second screenshot. Would it be possible for you to help me understand how to work through this problem and how each of the sentences in part one are incorporated into the table in part 2? Thank you!
There are two parts to this question. The first question shows screenshots of the given information and fill in the blank sentences. The second part uses those answers to fill in the table in the second screenshot. Would it be possible for you to help me understand how to work through this problem and how each of the sentences in part one are incorporated into the table in part 2? Thank you!
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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There are two parts to this question. The first question shows screenshots of the given information and fill in the blank sentences. The second part uses those answers to fill in the table in the second screenshot. Would it be possible for you to help me understand how to work through this problem and how each of the sentences in part one are incorporated into the table in part 2? Thank you!
Transcribed Image Text:3. Gains from trade
Consider two neighboring island countries called Euphoria and Bellissima. 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)
Euphoria
4
16
Bellissima
6
12
Initially, suppose Bellissima uses 1 million hours of labor per week to produce jeans and 3 million hours per week to produce corn, while Euphoria uses
3 million hours of labor per week to produce jeans and 1 million hours per week to produce corn. Consequently, Euphoria produces 12 million pairs of
jeans and 16 million bushels of corn, and Bellissima produces 6 million pairs of jeans and 36 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.
Euphoria's opportunity cost of producing 1 pair of jeans is
of corn, and Bellissima's opportunity cost of producing 1 pair of jeans is
v 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.
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 14 million pairs of jeans to the other country in exchange for 42 million bushels of corn.
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 18 million pairs per week, and the total production of corn was 52 million
bushels per week. Because of specialization, the total production of jeans has increased by
million pairs per week, and the total production of
corn has increased by
million bushels per week.
Because the two countries produce more jeans and more corn under specialization, each country is able to gain from trade.
Transcribed Image Text: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
Bellissima
Jeans
Corn
Jeans
Corn
(Millions of pairs)
(Millions of bushels)
(Millions of pairs)
(Millions of bushels)
Without Trade
Production
12
16
6
36
Consumption
12
16
6
36
With Trade
Production
Trade action
Consumption
Gains from Trade
Increase in Consumption
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