I did some, but I don\'t know if they are correct... Help me please Consider two

Question

I did some, but I don't know if they are correct... Help me please Consider two neighboring Island countries called Contente and Dolorium. They each have 4 million labor hours available per month that they can use to produce rye, jeans, or a combination of both. The following table shows the amount of rye or jeans that can be produced using 1 hour of labor. Jeans (Pairs per hour of labor) 10 16 Rye (Bushels per hour of labor) Country Contente Dolorium Initially, suppose Contente uses 1 million hours of labor per month to produce rye and 3 million hours per month to produce jeans while Dolorium uses 3 million hours of labor per month to produce rye and 1 million hours per month to produce jeans. Consequently, Contente produces 5 millin bushels of rye and 30 million pairs of jeans, and Dolorium produces 12 million bushels of rye and 16 million pairs of jeans. 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 produces rye and jeans it Contente's opportunity cost of producing 1 bushel of rye is 2 pairs of jeans, and Dolorium's opportunity cost of p is 4 pairs of eans. Therefore, contente has a comparative advantage in the production of rye, and Do orium has a comparative advantage in the production of jeans. roducing 1 bushel of rye

Explanation / Answer

I'll refer to the countries as C & D.

(1) C's opportunity cost of producing 1 bushel of rye = (10 / 5) = 2 Jeans

D's opportunity cost of producing 1 bushel of rye = (16 / 4) = 4 Jeans

So, C has comparative advantage in producing rye. D has the same in produng jeans.

So your answer is correct!

(2) C will produce rye, so will produce (4 million hrs x 5 bushels per hr) = 20 million bushels of rye

D will produce jeans, so will produce (4 million hrs x 16 pairs per hr) = 64 million pairs of jeans

NOTE: D has total 4 million labors hours available, for producing whichever good it wants to produce. So D will utilize all the 4 million hrs in producing jeans only.

(3) C trades 13 million rye with 39 million jeans.

Total production of rye, after specialization, is 20 million rye instead of 17, so its production has increased by 3 million.

Total production of jeans, after specialization, is 64 million jeans instead of 46, so its production has increased by 18 million.

(4) WITH TRADE

C produces total 20 million rye & exports 13 million (given). So, consumption = (20 -13) = 7 million

Before specialization, C produced (and consumed) 5 million rye.

So increase in C's consumption of rye = 7 - 5 = 2 million

After trade, C does NOT produce jeans. So C now imports its entire demand for jeans (from D, 39 million jeans as stated).

So, for C's jeans, after trade:

Production = 0

Imports = 39 million

Increase in consumption = (39 - 30) = 9 million

Similarly:

before trade, D produced & consumed 12 rye & 16 jeans.

After trade, D does NOT produce any rye. So rye production = 0

But D imports 13 million rye from C.

So, consumption of rye in D has increased, from 12 to 13 million.

So increase in D's consumption of rye = 1 million

Again, after trade D exports 39 million jeans. D's domestic production of jeans, after trade, is 64 million.

So domestic consumption after trade = 64 - 39 = 25 million jeans

So consumption of jeans in D has increased, from 16 to 25 million.

D's increase in consumption of jeans = 25 -16 = 9 million.

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