Consider two neighboring island countries called Arcadia and Felicidad. They eac
ID: 1132132 • Letter: C
Question
Consider two neighboring island countries called Arcadia and Felicidad. They each have 4 million labor hours available per week that they can use to produce jeans, corn, or a combination of both. The following table shows the amount of jeans or corn that can be produced using 1 hour of labor Jeans Corn Country (Pairs per hour of labor) Bushels per hour of labor) Arcadia Felicidad 12 24 8 32 Initially, suppose Arcadia uses 1 million hours of labor per week to produce jeans and 3 million hours per week to produce corn, while Felicidad uses 3 million hours of labor per week to produce jeans and 1 mlion hours per week to produce corn. Consequently, Arcadia produces 12 million pairs of jeans and 72 million bushels of corn, and Felicidad produces 24 million pairs of jeans and 32 million bushels of corn. 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 corn it produces IMPORTANT NOTICE: The parenthesis after each blank indicate what type of answer the blank requires. Arcadia's opportunity cost of producing 1 pair of jeans is (integer value) bushels of corn, and Felicidad's opportunity cost of producing 1 pair of eans iS integer value) bushels of corn. Therefore, (Arcadia or Felicidad) has a compartive advantage in the production of jeans, and (Arcadia or Felicidad) has a comparative advantage in the production of corn. 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 (integer value) million pairs per week, and the country that produces corn will produce integer value) million bushels per week. 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 36 million pairs per week, and the total production of corn was 104 million bushels per week. Because of specialization, the total production of jeans has increased by has increased by (integer value) million pairs per week, and the total production of corn (integer value) million bushels per week. Because the two countries produce more jeans and more corn under specialization, each country is able to gain from tradeExplanation / Answer
Each country have 4 million labor hours.
Arcadia's opportunity cost of producing 1 pair of jeans is 96/48= 2 bushels of corn.And Felicidad's opportunity cost of producing 1 pair of jeans is 128/32= 4 bushels of corn. Therefore, Arcadia has a comparative advantage in the production of jeans because it has the lower opportunity cost for the production of jeans.
Similarly, Arcadia's opportunity cost of producing 1 bushel of corn is 48/96= 0.5 pair of jeans . And Felicidad's opportunity cost of proucing 1 bushel of corn is 32/128 =0.25 pair of jeans . Therefore, Felicidad has a comparative advantage in th eproduction of corn because it has the lower opportunity cost in the production of corn.
Suppose that each country specialize 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 i.e Arcadia will produce 48 million pairs per week and the country that produces corn i.e Felicidad will produce 128 million bushels per week.
Suppose the country that produces jeans trades 26 million pair of jeans to the other country in exchange for 78 million bushels of corn.
When the two countries did not specialize ,the total production of jeans was 36 million pairs per week and the total production of corn was 104 million bushels per week. Because of specailisation , the total production of jeas has increased by (48-36)= 12 million pairs per week and the total production of corn has increased by (128-104)= 24 million bushels per week.
Because the two countries produce more jeans and more corn under specialization , each country is able to gain from trade.
Country Jeans (Million pairs) Corn (Million bushels) Arcadia (12)(4)=48 (24)(4)=96 Felicidad (8)(4)=32 (32)(4)=128