Question

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 of labor per week to produce jeans and 3 million hours per week to produce rye, while Euphorla uses 3 million hours of labor per week to produce jeans and 1 million hours per week to produce rye. Consequently, Contente produces 8 million pairs of jeans and 48 million bushels of rye, and Euphoria produces 15 million pairs of jeans and 20 million bushels of rye. 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 rye it of rye, and Euphoria's opportunity cost of producing 1 pair of jeans is Contente's opportunity cost of producing 1 pair of jeans is of rye. Therefore, v has a comparative advantage in the production of rye. Suppose that each country completely specializes in the production of the good in which it has a comparative advantage, producing only that pood. In this case, the country that produces jeans will produce million pairs per week, and the country that produces rye will produce million bushels per week. Type here to search Cengage ng.cengage.com ら:CENGAGE I MINDTAP Homework (Ch 03) Suppose the country that produces jeans trades 18 million pairs of jeans to the other country in exchange for 54 million bushels of rye. 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 When the two countries did not specialize, the total production of jeans was 23 million pairs per week, and the total production of rye was 68 million bushels per week. Because of specialization, the total production of jeans has increased by rve has increased bymillion bushels per week. million pairs per week, and the total production of Because the two countries produce more jeans and more rye 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 Jeans Rye (Millions of bushels) (Millions of pairs) (Millions of peirs) (Millions of bushels) 20 15 48 Production 20 15 Consumption 48 With Trade CENGAGE I MİNDTAP is, the amount by which each country has increased its of each good relative to the first row of the Rye 15 Increase in C O Type here to search

Answer 1

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