Question

Assume that the farmer and the rancher can switch between producing pork and producing tomatoes at a constant rate. Labor Hours Needed to Make 1 Pound of Pounds Produced in 24 Hours Pork Tomatoes Pork Tomatoes Farmer 6 3 4 8 Rancher 4 4 16 6 Refer to Table 3-23. Without trade, the farmer produced and consumed 2 pounds of pork and 4 pounds of tomatoes and the rancher produced and consumed 4 pounds of pork and 2 pounds of tomatoes. Then, each person agreed to specialize in the production of the good in which he has a comparative advantage and trade 4 pounds of pork for 6 pounds of tomatoes. As a result, the farmer gained 3 hours worth of production and the rancher gained 4 hours worth of production the farmer gained 6 hours worth of production and the rancher gained 8 hours worth of production the farmer gained 8 hours worth of production and the rancher gained 10 hours worth of production the farmer gained 4 hours worth of production and the rancher gained 6 hours worth of production

Answer 1

the farmer gained 6 hours worth of production and the rancher gained 8 hours worth of production.

The farmer has a comparative advantage in Tomatoes and rancher has a comparative advantage in Pork. To see how, let's calculate their opportunity cost

	Opportunity cost
	Pork	Tomatoes
Farmer	2	0.5
Rancher	1	1

This is their opportunity cost table.

The farmer's cost of producing 1 Pound of pork is 2 tomatoes while the cost of producing 1 pound of tomato is only 0.5 pound pork while Rancher's opportunity cost of producing 1 pound of Pork is 1 pound tomato compared to 2 pounds of tomato for Farmer

The farmer has a comparative advantage in Tomatoes and Ranches has a comparative advantage in Pork.

So itis clear that the farmer will produce Tomatoes and Rancher will produce pork.

They traded 4 pounds of pork for 6 pounds of tomatoes

The farmer must have bought pork in exchange for tomatoes

For farmer - 4 pounds of pork is 24 hours of work while 6 pounds of tomatoes are 18 hours of work. He purchased pork for tomatoes. In this trade, he gained 24 - 18 = 6 hours of work

For Rancher = 4 pounds of pork is 16 hours of work while 6 pounds of tomatoes are 24 hours of work. He purchased tomatoes for pork so he gained 24 - 16 = 8 hours