Consider two neighboring countries islands called c and f. they each have 4 million labor hours available that they can use to produce jeans, rye or both. The following table shows the quantity of jeans and rye that can be produced in an hour.
Jeans (pairs per hour) Rye (bushels per hour)
C 8 16
F 5 20
Initially suppose c uses 1 million hours to produce jeans and 3 million hours to produce rye. While F uses 3 million hours to produce jeans and 1 million hours to produce rye.consequently C produces 48 bushels of rye and 8 million pairs of jeans . F produces 20 million bushels of rye and 15 million pairs of jeans. Assume there are no other countries to trade with each country consumes the quantity of jeans and rye it produces.
Cs opportunity cost is of producing one pair of jeans to _____(4,2,1/2,1/4 bushels) of rye. And Fs opportunity cost of producing one pair of jeans to ( 4,2,1/2,1/4 bushels ) of rye. Therefore _____ (C or F)has a comparative advantage in the production of jeans and ______(C or F) has a comparative advantage in the production of rye.
Suppose that each country specializes in the production of the good in which it has a comparative advantage producing only that product. In this case the country that produces jeans will produce _____(20, 32,64 or 80 million)pairs and the country that produces rye will produce _____(20,32,64 or 80 bushels) of rye.( in the table at the end of this problem enter each countrys production decision on the second row marked production)
Suppose the country that produces jeans trade 18 million pairs to the other country and in exchange for 54 million bushels of rye.in the table at the end of this problem select the quantity of each good that each country exports and imported in the boxes across the top marked trades and enter each countries final consumption marked consumption.
When the two countries didn't specialize the total production of jeans were 23 million pairs and a total production of rye was 68 million bushels . because of specialization the total production of jeans has increased by ______(3,6,9,12 million)per pair per month. And the total production of rye has increased by (12,16,18,24 million)bushels per month.because the two countries produce more jeans and more rye under specialization each country gained 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 table enter this difference in the boxes across the last row ( increase in consumption)
C F
Jeans Rye Jeans Rye
w/o trade 8 48 15 20
prod. And consumption
With trade(Prod. ____ _____ _____ _____
Trade gives 18/get18 gets4/gives54 gets 18/gives 18 gets 54/gives 54
Comsump. _______ ___________ __________ ___________
Gains from trade
Increase in consumption
_________ ___________ _______________- __________