MINDTAP fom Cengage Homework #2-Ch 03 Contente uses 1 million hours of labor per
ID: 1134614 • Letter: M
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MINDTAP fom Cengage Homework #2-Ch 03 Contente uses 1 million hours of labor per month to produce rye and 3 million hours per month to Initially, uses 3 million hours of labor per month to produce rye and produce jeans, while Dolorlum 1 million hours per month to produce jeans. Consequently, Contente produces 8 million per month to bushels of rye and 48 million pairs of jeans, and Dolorium produces 15 million bushels of rye and 20 million countries willing to trade goods, so, in the absence of trade between these two produces countries, each country consumes the amount of rye and jeans it Contente's opportunity cost of producing 1 bushel of rye is 1/2 pair of jeans, and Dolorium's opportunity cost of producing 1 bushel of rye is 1 4 pair of eans. Therefore Contente has a comparative advantage in the production of rye, and Doloríum has a comparative advantage in the production of jeans. Suppose that each co ntry 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 rye will produce24 million bushels per month, and the country that produces jeans will produce 60 million pairs per month. In the following table, enter each country's production decision on the third row of the table (marked "Production). Suppose the country that produces rye trades 18 million bushels of rye to the other country in exchange for 54 million pairs of jeans. 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 rye was 23 million bushels per month, million pairs per month. Because of specialization, the total production of rye has increased by 31 million bushels per month, and the total and the total production of jeans was 68 40 million pairs per month. production of jeans has increased byExplanation / Answer
Contente's opportunity cost of producing 1 bushel of rye is 2 pairs of jeans (=64/32), and Dolorium's opportunity cost of producing 1 bushel of rye is 4 pairs of jeans (=80/20). Therefore, Contente has a comparative advantage in the production of rye, and Dolorium has a comparative advantage in the production of jeans.
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 rye will produce 32 million bushels per month (= 8 x 4), and the country that produces jeans will produce 80 million pairs per month. (= 20 x 4)
Because of specialization, the total production of rye has increased by 9 million bushels per month, and the total production of jeans has increased by 12 million pairs per month.
Increase in consumption = consumption after trade - consumption before trade
Contente Dolorium Rye Jeans Rye Jeans (Millions of bushels) (Millions of pairs) (Millions of bushels) (Millions of pairs) Without Trade Production 8 48 15 20 Consumption 8 48 15 20 With Trade Production 32 0 0 80 Trade action -18 54 18 -54 Consumption 14 54 18 26 Gains from Trade Increase in Consumption 6 6 3 6Related Questions
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