(Please fill in the blanks for the bottom chart too, the blue boxs indicate blan

Question

(Please fill in the blanks for the bottom chart too, the blue boxs indicate blanks that need to be filled. )

2. Gain from specialization and trade Aa Aa Consider two neighboring island countries called Felicidad and Bellissima. 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 quantity of rye or jeans that can be produced using one hour of labor Rye (Bushels per hour of labor) 8 eans (Pairs per hour of labor) 32 24 Felicidad Bellissima Initially, suppose Bellissima uses 1 million hours of labor per month to produce rye and 3 million hours per month to produce jeans, while Felicidad uses 3 million hours of labor per month to produce rye and 1 million hours per month to produce jeans Consequently, Felicidad produces 24 million bushels of rye and 32 million pairs of jeans, and Bellissima produces 12 million bushels of rye and 72 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 quantity of rye and jeans it produces Felicidad's opportunity cost of producing one bushel of rye is of jeans, and Bellissima's opportunity cost of 4 pairs 2 pairs 1/2 pair 1/4 pair producing one bushel of rye is of jeans. Therefore, has a comparative advantage in the 2 pairs 1/2 pair 1/4 pair 4 pairs Felicidad Bellissima production of rye and has a comparative advantage in the production of jeans Felicidad Bellissima Suppose that each country specializes entirely 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 bushels per month, and the country 96 million 128 million 32 million 48 million that produces jeans will produce pairs per month. In the table at the end of this problem, enter each country's 32 million 48 million 96 million 128 million production decision in the row labeled "Production." Suppose the country that produces rye trades 26 million bushels of rye to the other country in exchange for 78 million pairs of jeans. In the table at the end of this problem, select the quantity of each good that each country exports and imports in the boxes across the row labeled "Exports () or Imports (+)," and enter each country's final consumption of each good in the row labeled "Consumption." When the two countries did not specialize, the total production of rye was 36 million bushels per month and the total production of jeans was 104 million pairs per month. Because of specialization, the total production of rye has increased by bushels per month, and the total production of jeans has increased by pairs per month 12 million 3 million 9 million 6 million 18 million 12 million 16 million 24 million Because the two countries produce more rye and more jeans under specialization, each country is able to gain from specialization and trade. Calculate the gains from specialization and trade-in this case, the amount by which each country has increased its consumption of each good relative to the quantities given in the first row of the table. In the table, enter this difference in the row labeled "Increase in consumption." Felicidad Bellissima Rye (Millions of bushels) Rye (Millions of bushels) Jeans Jeans (Millions of pairs) (Millions of pairs) No Specialization-No Trade (NS-NT) Prod. and consumption 24 32 72 Specialization-Trade (S-T) Production Exports ( or Imports (+) -26 +26 -78 +78 +26 -26 +78 -78 Consumption Gains from Specialization and Trade Increase in consumption

Explanation / Answer

1 4 pairs Export Bellissima 48 Million 26 Million Bushells 22 2 2 pairs Felicidad 128 Million 78 Million Pair of Jeans 50 3 Bellissima 4 Felicidad 5 48 Million 6 128 Million 7 12 Million 8 24 Million Felicidad Bellissima Rye Jeans Rye Jeans No Specialization Prod. & Consumption 24 32 12 72 Specialization Production 0 128 48 0 Export(-) Or Import (+) 26 -78 -26 78 Consumption 26 50 22 78 Gains from specialization and trade 2 18 10 6

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