In the folowing table, enter each country\'s production decision on the third ro

Question

In the folowing table, enter each country's production decision on the third row of the table (marked "Production"). Suppose the country that produces jeans trades 14 million pairs of jeans to the other country in exchange for 42 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 enter 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 18 million pairs per month, and the total production of rye wis $2 million bushels per month. Because of spedalization, the total production of jeans has increased by of rye has increased by million pairs per month, and the total production million bushels per month Because the two countries produce more Jeans and more rye under specialization, each country is able to gain from trade, Caiculate the geins 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 "Tncrease in Consumption Felicidad Contente Jeans Rye (Millions of bushels) Jeans Rye (Millions of bushels) (Millions of pairs) (Millions of pairs) Without Trade Production 12 16 36 Consumption 12 16 36 With Trade Production Trade action Consumption Gains from Trade Increase in Consumption Grade t Save &

Explanation / Answer

1. Felicidad :

4 bushels of Jeans = 16 pairs of Rye

1 bushel of Jeans = 16/4 or 4 pairs of Rye

So, opportunity cost of 1 bushel of Jeans is 4 pairs of Rye.

2. Contente:

6 bushels of Jeans= 12 pairs of Rye

1 bushel of Jeans = 12/6 or 2 pairs of Rye

So, opportunity cost of 1 bushel of Jeans is 2 pairs of Rye.

3. A country has a comparative advantage in producing that good if the opportunity cost of producing that good is lower in that country as compared to another country.

Contente has comparative advantage in the production of Jeans and Felicidad has a comparative advantage in Rye.

4. Contente will produce only Rye and in

1 million hours it produce 6 million bushel of Jeans

4 million = 6 million X 4 = 24 million

5. Felicidad will produce only Rye and in

1 million hours it produces 16 million pairs of Rye

4 million = 16 X 4 million = 64 million

6. Total production of Jeans increases by 24 million - 18 million = 6 million

7. Total production of Rye increases by 64 million - 52 million = 12 million

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