Please fill in the blanks 2. Gains from trade Aa Aai Consider two neighbouring i
ID: 1115870 • Letter: P
Question
Please fill in the blanks 2. Gains from trade Aa Aai Consider two neighbouring island countries called Bellissima and Dolorium. They each have 4 million labour hours avallable per week that they can use to produce corn, jeans, or a combination of both. The following table shows the amount of corn or jean that can be produced using one hour of labour. Jeans (Pairs per hour of labour) 16 48 Corn (Kilograms per hour of labour) Bellissima Dolorium 12 Initially, suppose Bellissima uses 1 million hours of labour per week to produce corn and 3 milion hours per week to produce jeans, while Dolorium uses 2 million hours of labour per week to produce corn and 2 million hours per week to produce jeans. Consequently, Bellissima produces 8 million kilograms of corn and 48 million pairs of jeans, and Dolorium produces 24 million kilograms of corn and 96 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 corn and jeans it produces. of jeans, and Dolorium's opportunity cost of Bellissima's opportunity cost of producing one kilogram of corn is producing one kilogram of corn is production of corn and of jeans. Therefore, has a comparative advantage in the 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 corn will produce the country that produces jeans will produce production decision on the second row of the table (marked "Production"). kilograms per week, and pairs per week. In the following table, enter each country'sExplanation / Answer
1. Bellissima's opportunity cost of producing 1 kg of corn is 2 pairs of jeans, Dolorium's opportunity cost of producing one kilogram of corn is 4 pairs of jeans. Therefore, Bellissima has a comparative advantage in the production of corn and Dolorium has a comparative advantage in production of jeans.
[Calculations:
8 kg corn requires 60 minutes. So, 1 kg of corn production requires 7.5 minutes.
And, 16 pairs of jeans can be produced in 60 minutes, so 1 pair of jeans requires 3.75 minutes.
Hence the opportunity cost of producing 1 kg of corn in 2 pairs of jeans.]
2. Suppose that each country specializes in the production of the good in which it has comparative advantage, producing only that good. in this case the country that produces corn will produce, 32,000,000 kiligrams per week, and the country that produces jeans will produce 192,000,000 pairs of jeans.
[Calculations:
Corn production by Bellissima: 60000000 minutes per week / 7.5 minutes = 32,000,000 kg of corn.
Jeans production in Dolorium: 120000000 minutes per week / 1.25 minutes = 192,000,000]
3.Because of specialization, the total production of corn has increased by 0 kg per week, and the total production of jeans has increased by 48 million pairs per week.