Question

Consider two neighboring Island countries, Charisma and Flatstan. Each has 72,000 labor hours available per week that it can use to produce jeans, wheat, or a combination of both. The following table shows the amount of labor hours required to produce 1 pair of jeans or 1 bushel of wheat. Wheat (Labor hours per bushel) Country Charisma Jeans (Labor hours per pair) 80 24 16 Flatstan 12 has an absolute advantage in the production of jeans, and has an absolute advantage in the production of wheat. Initially, suppose Charisma uses 54,000 hours of labor per week to produce Jeans and 18,000 hours per week to produce wheat, while Flatstan uses 18,000 hours of labor per week to produce jeans and 54,000 hours per week to produce wheat. 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 wheat it produces. Charisma's opportunity cost of producing 1 pair of jeans is of wheat, and Flatstan's opportunity cost of producing 1 pair of jeans is of wheat. Therefore, has a comparative advantage in the production of jeans, and has a comparative advantage in the production of wheat. pairs per week, and the total production of wheat is When neither country specializes, the total production of jeans is bushels per week. Suppose that Charisma completely specializes in the production of the good in which it has a comparative advantage, producing only that good. It will produce Suppose also that Flatstan does not specialize and uses 54,000 hours of labor to produce Jeans and 18,000 hours of labor to produce wheat. It will produce pairs or Jeans and bushels of wheat. Suppose Charisma and Flatstan agree to trade with each other, exchanging 1,100 pairs of jeans for 3,300 bushels of wheat. In particular, Charisma will export the goods it produces, and Flatstan will export the goods that Charisma does not produce. with trade, Charisma will jeans and wheat. Flatstan will Jeans and wheat. When Charisma specializes and Flatstan still produces the combination of goods using 54,000 hours of labor to produce jeans and 18,000 hours of labor to produce wheat, the total production of jeans becomes pairs per week, and the total production of wheat becomes bushels per week.

Answer 1

As per rules I am answering the first 4 subparts of the question:

1. Fiatstan

(Fiatstan has an absolute advantage in production of jeans since it uses lesser labour hours for producing 1 pair which means more number of jeans are produced per labour hour)

2. Fiatstan

(Fiatstan has an absolute advantage in production of wheat since it uses lesser labour hours for producing 1 bushel which means more number of bushels are produced per labour hour)

3. Charishma's opportunity cost of producing 1 pair of jeans = Hours to produce jeans/ Hours to produce wheat

= 80/16

= 5 bushels of wheat

4. Fiatstan’s opportunity cost of producing 1 pair of jeans = Hours to produce jeans/ Hours to produce wheat

= 24/12

= 2 bushels of wheat