3. Gains from trade
Consider two neighboring island countries called Euphoria and Contente. They each have 4 million labor hours available per week that they can use to produce rye, jeans, or a combination of both. The following table shows the amount of rye or jeans that can be produced using 1 hour of labor.
Country |
Rye |
Jeans |
---|---|---|
(Bushels per hour of labor) |
(Pairs per hour of labor) |
|
Euphoria | 4 | 16 |
Contente | 6 | 12 |
Initially, suppose Contente uses 1 million hours of labor per week to produce rye and 3 million hours per week to produce jeans, while Euphoria uses 3 million hours of labor per week to produce rye and 1 million hours per week to produce jeans. Consequently, Euphoria produces 12 million bushels of rye and 16 million pairs of jeans, and Contente produces 6 million bushels of rye and 36 million pairs of jeans. 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 rye and jeans it produces.
Euphoria's opportunity cost of producing 1 bushel of rye is of jeans, and Contente's opportunity cost of producing 1 bushel of rye is of jeans. Therefore, has a comparative advantage in the production of rye, and has a comparative advantage in the production of jeans.
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 rye will produce
million bushels per week, and the country that produces jeans 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 rye trades 14 million bushels of rye to the other country in exchange for 42 million pairs of jeans.
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 rye was 18 million bushels per week, and the total production of jeans was 52 million pairs per week. Because of specialization, the total production of rye has increased by
million bushels per week, and the total production of jeans has increased by
million pairs per week.
Because the two countries produce more rye and more jeans 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").
Euphoria |
Contente |
|||
---|---|---|---|---|
Rye |
Jeans |
Rye |
Jeans |
|
(Millions of bushels) |
(Millions of pairs) |
(Millions of bushels) |
(Millions of pairs) |
|
Without Trade | ||||
Production | 12 | 16 | 6 | 36 |
Consumption | 12 | 16 | 6 | 36 |
With Trade | ||||
Production | ||||
Trade action | ||||
Consumption | ||||
Gains from Trade | ||||
Increase in Consumption |
3. Gains from trade Consider two neighboring island countries called Euphoria and Contente. They each have...
3. Gains from trade Consider two neighboring island countries called Contente and Euphoria. They each have 4 million labor hours available per week that they can use to produce rye, jeans, or a combination of both. The following table shows the amount of rye or jeans that can be produced using 1 hour of labor Rye Jeans Country (Bushels per hour of labor) (Pairs per hour of labor) Contente Euphoria 16 20 Initially, suppose Contente uses 1 million hours of...
Alleme: 1 3. Gains from trade Consider two neighboring island countries called Contente and Euphoria. They each have 4 million labor hours available per week that they can use to produce rye, Jeans, or a combination of both. The following table shows the amount of rye or Jeans that can be produced using 1 hour of labor. Rye (Bushels per hour of labor) Jeans (Pairs per hour of labor) Country Contente Euphoria Initially, suppose Contente uses 1 million hours of...
3. Gains from trade Consider two neighboring island countries called Euphoria and Contente. 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 (Pairs per hour of labor) Corn (Bushels per hour of labor) Country Euphoria Contente Initially, suppose Contente uses 1 million hours of labor per...
4. Gains from trade Consider two neighboring island countries called Contente and Euphoria. 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 (Pairs per hour of labor) Corn (Bushels per hour of labor) Country Contente Euphoria 16 20 Initially, suppose Contente uses 1 million hours of...
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Consider two neighboring island countries called Euphoria and Contente. They each have 4 million labor hours available per month that they can use to 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. Country Jeans Rye (Pairs per hour of labor) (Bushels per hour of labor) Euphoria 4 16 Contente 5 10 Initially, suppose Contente uses 1 million hours of labor per...
3. Gains from trade Consider two neighboring island countries called Bellissima and Euphoria. They each have 4 million labor hours available per week that they can use to 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 eans Country(Pairs per hour of Iabor) Bellissima Euphoria Rye (Bushels per hour of labor) 12 16 4 Initially, suppose Bellissima uses 1 million hours of...
3. Gains from trade Consider two neighboring island countries called Bellissima and Euphoria. They each have 4 million labor hours available per month that they can use to 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 eans Country(Pairs per hour of labor) Bellissima Euphoria Rye (Bushels per hour of labor) 16 20 Initially, suppose Bellissima uses 1 million hours of labor...
CENGAGE I MINDTAP Homework (Ch 03) Consider two neighboring island countries called Contente and Euphoria. They each have 4 million labor hours available per week that they can use to 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. Jeans Rye (Bushels per hour of labor) Country (Pairs per hour of labor) Contente 16 20 Initially, suppose Contente uses 1 milion hours...
Homework (Ch 03) 3. Galns from trade Consider two neighboring island countries called Euphoria and Contente. They each have 4 million labor hours available per week that they can use to produce corn, jeans, or a combination of both. The following table shows the amount of corn or jeans that can be produced using 1 hour of labor Corn Country Euphoria Contente Jeans (Pairs per hour of labor) 20 16 (Bushels per hour of labor) Initially, suppose Contente uses 1...