Gaint from trade Consider two neighboring island countries, Bellissima and Eupho
ID: 1167881 • Letter: G
Question
Gaint from trade
Consider two neighboring island countries, Bellissima and Euphoria. Each has 24,000 labor hours available per week that it can use to produce jeans, corn , or a combination of both. The following table shows the amount of labor hours required to produce one pair of jeans or one bushel of corn.
jeans
(Labor hours per pair)
Corn
(Labor hours per bushel)
Initially , suppose Bellissima uses 18,000 hours of labor per week to produce jeans and 6,000 hours per week to produce corn, while Euphoria uses 6,000 hours of labor per week to produce jeans and 18,000 hours per week to produce corn. Consequently, Bellissima produces 375 pairs of jeans and 500 bushels of corn, and Euphoria produces 300 pairs of jeans and 1,800 busheis of corn. Assume there are no other countries willing to trade goods, so in the absence of trade between the two countries, each country consumes the amount the of jeans and corn it produces.
Bellissima's opportunity cost of prducing on pair of jeans is (1) ____________ ((4 bushels - 1/2 bushel - 2 bushels - 1/4 bushels )) of corn, and Euphoria's opportunity cost of producing one pair of jeans is (2)_______________ (( 1/4 bushel - 1/2 bushel - 4 bushels - 2 bushels )) of corn. Therefore,(3)_____________(( Bellissima - Euphoria )) has a comparative advantage in the production of jeans, and (4)______________(( Bellissima - Euphoria )) has a comparative advantage in the production of corn.
2/ Suppose that Bellissima completely specializes in the production of the good in which it has a comparative advantage, producing onl that good. It will produce (5) ____________(( 500 - 2000 - 2400 - 1200 )) (6)______________ ((Bushels of corn - pairs of jeans )) .
3/ Suppose also that Euphoria does not specialize and uses 18,000 hours of labor to produce jeans and 6,000 hours of labor to produce corn. It will produce (7) __________(( 900 - 500 - 1200 )) pairs of jeans and (8)__________(( 2000 - 2400 - 600 )) bushels of corn.
4/ Suppose Bellissima and Euphoria agree to trade with each other, exchanging 450 pairs of jeans for 1,350 bushels of corn. In particular, Bellissima will export the goods it produces and Euphoria will expor the goods that Bellissima does not produce.
With trade, Bellissima will (9)____________(( export - import )) jeans and (10)_____________(( export - import )) corn. Euphoria will (11)__________(( export - import )) jeans and (12)___________(( export - import )) corn .
5- When neithen country specializes, the total production of jeans is (13) _____________ (( 900 - 2600 - 675 - 2300 )) pairs per week, and the total production of corn is (14) ___________ (( 2600 - 2300 - 900 - 675 )) bushels per weel .
When Bellissima specializes and Euphoria still produces the combination of goods using 18,000 hours of labor to produce jeans and 6,000 hours of labor to produce corn, the total production of jeans becomes (15)___________ (( 2600 - 2300 - 900 - 675 )) pairs pers week , and the total production of corn became (16)__________(( 2600 - 2300 - 900 - 675 )) bushels per week.
jeans
(Labor hours per pair)
Corn
(Labor hours per bushel)
Bellissima 48 12 Euphoria 20 10Explanation / Answer
Bellissima's opportunity cost of prducing one pair of jeans is :
(1) 48/12 = 4 bushels of of corn,
and Euphoria's opportunity cost of producing one pair of jeans is:
(2) 20/10 = 2 bushels of corn.
Therefore,(3) Euphoria has a comparative advantage in the production of jeans,
and (4) Bellissima has a comparative advantage in the production of corn.
If Bellissima completely specializes in the production of the good in which it has a comparative advantage, producing that good, it will produce:
(5) 24000/12 = 2000 (6)Bushels of corn
If Euphoria does not specialize and uses 18,000 hours of labor to produce jeans and 6,000 hours of labor to produce corn. It will produce (7) 18000/20 = 900 pairs of jeans and (8) 6000/10 = 600 bushels of corn.
If Bellissima and Euphoria agree to trade with each other, exchanging 450 pairs of jeans for 1,350 bushels of corn. In particular, Bellissima will export the goods it produces and Euphoria will export the goods that Bellissima does not produce. With trade, Bellissima will (9) import jeans and (10) export corn.
Euphoria will (11) export jeans and (12) import corn .
When neithen country specializes, the total production of jeans is (13) Production of jeans by Bellissima + Production of jeans by Euphoria = 375 + 300 = 675 pairs per week, and the total production of corn is (14)Production of corn by Bellissima + Production of corn by Euphoria = 500+1800 = 2300 bushels per week .
When Bellissima specializes and Euphoria still produces the combination of goods using 18,000 hours of labor to produce jeans and 6,000 hours of labor to produce corn, the total production of jeans becomes (15) 900 pairs of jeans per week as only Euphoria will produce jeans, and the total production of corn became (16) Production of corn by Bellissima + Production of corn by Euphoria =2000 + 600 = 2600 bushels per week.
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