Calculate the gains from trade

Assignment Help Business Economics
Reference no: EM131392160

Consider two neighboring island countries called Contente and Felicidad. 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.

Country Jeans Rye (Pairs per hour of labor) (Bushels per hour of labor)

Contente 6 12

Felicidad 4 16

Initially, suppose Contente uses 1 million hours of labor per week to produce jeans and 3 million hours per week to produce rye, while Felicidad uses 3 million hours of labor per week to produce jeans and 1 million hours per week to produce rye. Consequently, Contente produces 6 million pairs of jeans and 36 million bushels of rye, and Felicidad produces 12 million pairs of jeans and 16 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.

Contente's opportunity cost of producing 1 pair of jeans is of (_______)rye, and Felicidad's opportunity cost of producing 1 pair of jeans is (______)of rye. Therefore, (________)has a comparative advantage in the production of jeans, and (____________) has a comparative 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 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.

In the following 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 week, and the total production of rye was 52 million bushels per week. Because of specialization, the total production of jeans has increased by (_____)million pairs per week, and the total production of rye has increased by (____) million bushels per week.

Because the two countries produce more jeans and more rye under specialization, each country is able to gain from 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 following table, enter this difference in the boxes across the last row (marked "Increase in Consumption").

Contente Felicidad

Jeans Rye Jeans Rye

(Millions of pairs) (Millions of bushels) (Millions of pairs) (Millions of bushels)

Without Trade

Production 6 36 12 16

Consumption 6 36 12 16

With Trade _ _ _ _

Production _ _ _ _

Trade Action

Consumption

Gains from Trade

Increase in Consumption

Reference no: EM131392160

Questions Cloud

The state of illinois levies the tax : Under which situation is a resident of Chicago more likely to bear the economic incidence of a unit tax on tobacco: (#1) the city of Chicago levies the tax, (#2) the state of Illinois levies the tax? Defend your answer using the appropriate diagrams ..
What he regards as the basic bargain : Summarize Robert Reich's assessment of the problems and challenges confronting the United States' economy, what he regards as the "basic bargain" and evaluate whether or not you believe he is correct. Explain what economic issue you consider to be th..
Calculate both a four-firm concentration ratio : Suppose that the 5 firms in Industry A have annual sales of 25, 25, 20, 20, and 10 percent of total industry sales. For the five firms in Industry B the figures are 50, 15, 15, 10, and 10 percent. Calculate both a 4-firm concentration ratio and the H..
What do gordon and goldin mean by the great compression : What do Gordon and Goldin mean by the” great compression”? When did it occur? Has it continued? Can you give a reason for both events? What are the implications that Gordon highlights in terms of productivity?
Calculate the gains from trade : Consider two neighboring island countries called Contente and Felicidad. They each have 4 million labor hours available per week that they can use to produce jeans, rye, or a combination of both. Calculate the gains from trade—that is, the amount by ..
How much is she valuing her own life : John, an experienced and slick bank robber recruited Evelyn to rob a bank. Plans were set for them to acquire exactly $10 million from the bank vault. The odds of them dying in this heist is 1 in 10. Assuming that Evelyn was promised a share of 1/4 o..
What is outsourcing and subcontracting : Give an example of a small or medium enterprise, a summary and what they can do to be more sucessfully. Provide one economic argument in support of zonning and one economic argument in against of zoning. What is degree centrality? How does the govern..
What is the total amount of subsidy equal to : Orsell Events, LLC conducts a 10K event every year. The registration fee to join is $35. Currently 1,000 individuals run the race. Those who join 10Ks become healthier and save trips and spending at the doctor's clinic and possible hospital confineme..
Increases where is the new point relative to point : Given a point E in an IH-IS space, if r increases and q increases where is the new point (E') relative to point E? Given 4 treatments, their survival rates, and cost: Treatment Z: 50%, $3,000 Treatment Y: 60%, $4,000 Treatment X: 66%, $4,100 Treatmen..

Reviews

Write a Review

 

Business Economics Questions & Answers

  Discussion question on inflation

To show the gradual development of inflationary pressures in the postwar U.S. economy, and to show why these pressures posed problems for policymakers and also for Keynesian economics.

  Efforts must be made to uncork also pour both bottles

whenever the same efforts must be made to uncork also pour both bottles.

  Higher population growth in country

Countries A and B are exactly similar in terms of resources and technology. Still country A reported a higher growth rate than country B last year. Which of the following can explain this anomaly? I. higher population growth in country B II. favorabl..

  What is the marginal revenue product of labor

What is the marginal revenue product of labor (MRP)? What shape does the MRP curve have? Why? What is marginal factor cost? How is it related to the supply curve of an input?

  Tariffs more effective in increasing output

Consider a small open economy in the short run where the government imposes trade tariffs on corn. Under which regime (floating or fixed exchange), are the tariffs more effective in increasing output? Under which regime does the money supply increase..

  Households paid for providing entrepreneurial ability

Suppose the a business buy a total 110 billion of the four resources (land, capital, labor and entrepreneurial ability) from households. If households receive $64 billion in wages, $12 billion in rent, and $22 billion in interest, how much are househ..

  Fixed and variable costs at fast food restaurant

Identify your fixed and variable costs at your fast food restaurant, and explain the changes to each of these costs, given the increased demand.

  Find the marginal revenue

A Monopolist firm sees the following demand, find the marginal Revenue

  Diseconomies of scale of company production

Why is marginal analysis so important to consider when conducting any sort of analysis on the economies and diseconomies of scale of a company's production. How can one identify this to be the case?

  Illustrate what is the budget equation

You have an income of $40 to spend on two commodities. Commodity 1 costs $10 per unit, and commodity 2 costs $5 per unit, illustrate what is the budget equation.

  Consider a production function

Consider a production function of the form Y = AF (K, N, Z), where Z is a measure of natural resources used in production. Assume this production function has constant returns to scale and diminishing returns in each factor. a. What will happen to ou..

  Calculate the explicit-implicit and total economic cost

The student could also have earned $15,000 by getting a job instead of attending college and 10 percent interest on expenses he or she incurs at the beginning of the year. Calculate the explicit, implicit, and the total economic costs of attending..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd