Consider two neighboring island countries called Felicidad and Contente. They ea
ID: 1137358 • Letter: C
Question
Consider two neighboring island countries called Felicidad and Contente. They each have 4 milion labor hours available per month that they can use to produce jeans, ye, or a combination of both. The following table shows the amount of jeans or rye that can be produced using 1 hour of labor deans (Pairs per hour of labor) Country Felicidad Contente Rye (Bushels per hour of labor) 16 12 nitally, suppose Contente uses 1 million hours of iabor per month to produoe jeans and 3 millon hours per month to produce rye, while Felicded uset 3 million hours of labor per menth to produce jeans and 1 miltion hours per month to produce rye, Consequently, Felicidad produces 12 million pairs of jeans and 16 million bushels of rye, and Contente produces 6 mittion pairs of jeans and 36 million bushels of rye. Assume ehere are no other cnuntries wiling to trade goods, so, in the absence of trade between these two countnes, each country consumes the amount of jeans and rye it produces. Felicicad's opportunty eost of producing 1 pair of jeans is Y of rye, and Contente's opportunity cost of produxing t pair of jeans is of rye. Therefoe has a comparative advantage in the production of jeans and has a comparative advantage in the production of rye. Suppose that each country completely specialzes in the production of the good is which it has a comparative sdvantoge, produang only that goad In this case, the country that produces yeans will produce milion pairs per month, and the courtry that poden re-nar ehee · rillion bushels per month in the foioming tabie, enter each country's proauction decisian an phe trind row or cne table marked "Production Suppose the country that produces jeans trades 14 millian pars of jeans to the other country in exchange for 42 milicn bushes of rye. In the foloning table, select the amount of each good that eachry exparts and imports in the boxes across the row markea -Trade Actian, and of the cable (marked ester each country's Aral consumption of each good an the ine marked "Cansomption When the two countries aid not specalice, the total production of jeans was 18 milion pairs per morth, and the total production of rye was 52 miltionsExplanation / Answer
the opportunity cost of producing one pair of jeans for Felicidad is 4 bushels of rye while Contente's is 2 bushels of rye.
As Contente has a lower opportunity cost, she has a comparative advantage in the production of jeans while Felicidad has in the production of rye.
As both are endowed with 4 million labor hours, Felicidad can produce 64/3 bushels of rye whereas Contente can produce a total of 8 million pairs of jeans.