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," andenter each country's final consumption of each good on the line marked "Consumption."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 millionbushels per week. Because of specialization, the total production of jeans has increased by million pairs per week, and the total production ofrye has increased bymillion bushels per week.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 thetable. In the following table, enter this difference in the boxes across the last row (marked "Increase in Consumption").Without TradeProductionConsumptionWith TradeProductionTrade actionConsumptionGains from TradeIncrease in ConsumptionDoloriumJeans(Millions of pairs)1515Rye(Millions of bushels)2020ContenteJeans(Millions of pairs)Rye(Millions of bushels)4848 1. Gains from tradeConsider two neighboring island countries called Dolorium and Contente. They each have 4 million labor hours available per week that they can use toproduce 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.CountryDoloriumContenteJeansRye(Pairs per hour of labor) (Bushels per hour of labor)2016Initially, suppose Contente uses 1 million hours of labor per week to produce jeans and 3 million hours per week to produce rye, while Dolorium uses 3million hours of labor per week to produce jeans and 1 million hours per week to produce rye. Consequently, Dolorium produces 15 million pairs ofjeans and 20 million bushels of rye, and Contente produces 8 million pairs of jeans and 48 million bushels of rye. Assume there are no other countrieswilling to trade goods, so, in the absence of trade between these two countries, each country consumes the amount of jeans and rye it produces.of rye, and Contente's opportunity cost of producing 1 pair of jeans ishas a comparative advantage in the production of jeans, andhas a comparativeDolorium's opportunity cost of producing 1 pair of jeans isof rye. Therefore,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 good. Inthis case, the country that produces jeans will produce million pairs per week, and the country that produces rye will producemillion bushels 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 jeans trades 18 million pairs of jeans to the other country in exchange for 54 million bushels of rye.

Trade involves the transfer of goods and services from one person or entity to another, often in…

Without Trade Production Consumption With Trade Production Trade action Consumption Gains from Trade Increase in Consumption Dolorium 15 15 Jeans Rye Jeans Rye (Millions of pairs) (Millions of bushels) (Millions of pairs) (Millions of bushels) Contente 20 20 48 48

Without Trade Production Consumption With Trade Production Trade action Consumption Gains from Trade Increase in Consumption Dolorium 15 15 Jeans Rye Jeans Rye (Millions of pairs) (Millions of bushels) (Millions of pairs) (Millions of bushels) Contente 20 20 48 48

Microeconomics: Principles & Policy

14th Edition

ISBN:9781337794992

Author:William J. Baumol, Alan S. Blinder, John L. Solow

Publisher:William J. Baumol, Alan S. Blinder, John L. Solow

Chapter21: International Trade And Comparative Advantage

Section: Chapter Questions

Problem 2TY

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ome 3. Gains from trade ses Consider two neighboring island countries called Dolorium and Arcadia. They each have 4 million labor hours available per week that they can use to Mog and Study Tools 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. tal Options lege Success Tips Jeans Rye A- Country (Pairs per hour of labor) (Bushels per hour of labor) reer Success Tips Dolorium 4 16 ENDED FOR YOU Arcadia 10 Initially, suppose Arcadia uses 1 million hours of labor per week to produce jeans and 3 million hours per week to produce rye, while Dolorium uses 3 million hours of labor per week to produce jeans and 1 million hours per week to produce rye. Consequently, Dolorium produces 12 million pairs of jeans and 16 million bushels of rye, and Arcadia produces 5 million pairs of jeans and 30 million bushels of rye. Assume there are no other countries ng Focused willing to trade goods, so, in the absence…
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