Question

3. Gains from trade Consider two neighboring island countries called Euphoria and Arcadia. They each have 4 million labor hours available per month that they can use to produce corn, eans, or a combination of both. The following table shows the amount of corn or jeans that can be produced using hour of abo Corn Jeans (Pairs per hour of labor) 20 16 (Bushels per hour of labor) Country Euphoria Arcadia 8 Initially, suppose Arcadia uses 1 million hours of labor per month to produce corn and 3 million hours per month to produce jeans, while Euphoria uses 3 million hours of labor per month to produce corn and 1 million hours per month to produce jeans. Consequently, Euphoria produces 15 million bushels of corn and 20 min pairs of jeans, and Arcadia produces 8 million bushels of corn and 48 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 corn and jeans it produces Euphoria's opportunity cost of producing 1 bushel of corn is 4 pairs ▼ of jeans, and Arcadia's opportunity cost of producing 1 bushel of corn is 2 pairs ▼ of jeans. Therefore, Arcadia ▼ has a comparative advantage in the production of corn, and Euphoria ▼ 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 corn will produce 32 million bushels per month, and the country that produces jeans will produce 80 million pairs per month.

Answer 1

Jeans lel to Cn 4-8 t ble de in 2.0 /5 ) 4, JeM) the

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con Luth 54m Cosn 2 o 48 48 8o 31 (8-54) 16 (32-3): 14 54 (26-20): 6 14-3)6 54-43)6