Consider two neighboring island countries called Contente 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) Contente 12 24 Dolorium 32 Initially, suppose Contente uses 1 million hours of labor per week to produce jeans and 3 million hours per week produce corn, while Dolorium uses 3 million hours of labor per week to produce jeans and 1 million hours per week to produce corm. Consequently, Contente produces 12 million pairs of jeans and 72 million bushels of corn, and Dolorium produces 24 million pairs of jeans and 32 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. Contente'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 com. 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 26 million pairs of jeans to the other country in exchange for 78 million bushels of con. 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 week, and the total production of corn was 104 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. 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"). Contente Dolorium Jeans Corn Jeans Corn (Millions of pairs) (Millions of bushels) (Millions of pairs) (Millions of bushels) Without Trade Production 12 72 24 32 Consumption 12 72 24 32 With Trade Production Trade Action Consumption Gains from Trade Increase in Consumption

Consider two neighboring island countries called Contente 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) Contente 12 24 Dolorium 32 Initially, suppose Contente uses 1 million hours of labor per week to produce jeans and 3 million hours per week produce corn, while Dolorium uses 3 million hours of labor per week to produce jeans and 1 million hours per week to produce corm. Consequently, Contente produces 12 million pairs of jeans and 72 million bushels of corn, and Dolorium produces 24 million pairs of jeans and 32 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. Contente'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 com. 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 26 million pairs of jeans to the other country in exchange for 78 million bushels of con. 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 week, and the total production of corn was 104 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. 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"). Contente Dolorium Jeans Corn Jeans Corn (Millions of pairs) (Millions of bushels) (Millions of pairs) (Millions of bushels) Without Trade Production 12 72 24 32 Consumption 12 72 24 32 With Trade Production Trade Action Consumption Gains from Trade Increase in Consumption

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter33: International Trade

Section: Chapter Questions

Problem 8RQ: What is absolute advantage? What is comparative advantage?

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