3. Gains from trade Consider two neighboring island countries called Dolorium and Arcadia. 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 Country (Pairs per hour of labor) (Bushels per hour of labor) Dolorium 4 16 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 willing 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 Arcadia's opportunity cost of producing 1 pair of jeans is has a comparative Dolorium's opportunity cost of producing 1 pair of jeans is of rye. Therefore, has a comparative advantage in the production of jeans, and 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. In million pairs per week, and the country that produces rye will produce this case, the country that produces jeans will produce million bushels per week.
3. Gains from trade Consider two neighboring island countries called Dolorium and Arcadia. 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 Country (Pairs per hour of labor) (Bushels per hour of labor) Dolorium 4 16 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 willing 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 Arcadia's opportunity cost of producing 1 pair of jeans is has a comparative Dolorium's opportunity cost of producing 1 pair of jeans is of rye. Therefore, has a comparative advantage in the production of jeans, and 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. In million pairs per week, and the country that produces rye will produce this case, the country that produces jeans will produce million bushels per week.
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
Chapter19: Labor And Entrepreneurship: The Human Inputs
Section: Chapter Questions
Problem 14DQ
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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 of trade between these two countries, each country consumes the amount of jeans and rye it produces.
Dolorium's opportunity cost of producing 1 pair of jeans is
v of rye, and Arcadia's opportunity cost of producing 1 pair of jeans is
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v of rye. Therefore,
v
has a comparative advantage in the production of jeans, and
v has a comparative
advantage in the production of rye.
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Suppose that each country completely specializes in the production of the good in which it has a comparative advantage, producing only that good. 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.
A
In the following table, enter each country's production decision on the third row of the table (marked "Production").
Ps M A
WOPX
17
MacBook Air
F12
F1L
F9
F10
000
D00 F4
F8
F7
F5
F6
F2
F3
*
&
Expert Solution
Step 1
Given:-
Country Dolorium with 4 jeans and 16 rye and,
Country Arcadia with 5 jeans and 10 rye.
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