Suppose there exist two imaginary countries, Everglades andYosemite. Their labor forces are each capable of supplying fourmillion hours per week that can be used to produce pistachios,chinos, or some combination of the two. The following table showsthe amount of pistachios or chinos that can be produced by one hourof labor. \table[[Pistachios,Chinos],[Cosintry,(Pounds per hour oflabor),(Pairs per hour oflabor)],[Everglades,4,16],[Yosemite,6,12]] Suppose that initiallyYoremite uses 1 million hours of labor per week to producepistachios and 3 million hours per week to produce chinos, whileEverglades uses 3 million hours of labor per week to producepistachios and 1 million hours per week to produce chinos. As aresult, Everglades produces 12 million pounds of pistachios and 16million pairs of chinos, and Yosemite produces 6 million pounds ofpistachios and 36 million pairs of chinos. Assume there are noother countries willing to engage in trade, so, in the absence oftrade between these two countries, each country consumes the amountof pistachios and chinos it produces. Everglades's opportunity costof producing 1 pound of pistachios is
?of chinos, and Yosemite's opportunity cost of producing 1 poundof pistachios is
?of chinos. Therefore,
?has a comparative advantage in the production of pistachios,and
q,has a comparative advantage in the production of chinos.Supposethat each country completely specializes in the production of thegood in which it has a comparative advantage, producing only thatgood. In this case, the country that produces pistachios willproduce
?million pounds per week, and the country that produces chinoswill produce
?million pairs per week. In the following table, enter eachcountry's production decision on the third row of the table (marked"Production"). Suppose the country that produces pistachios trades14 million pounds of pistachios to the other country in exchangefor 42 million pairs of chinos. In the following table, select theamount of each good that each country exports and imports in theboxes across the row marked "Trade Action," and enter eachcountry's final consumption of each good on the line marked"Consumption." When the two countries did not specialize, the totalproduction of pistachios was 18 million pounds per week, and thetotal production of chinos was 52 million pairs per week. Becauseof specialization, the total production of pistachios has increasedby
?million pounds per week, and the total production of chinos hasincreased by
?million pairs per week. Because the two countries produce morepistachios and more chinos under specialization, each country isable to gain from trade.Calculate the gains from trade-that is, theamount by which each country has increased its consumption of eachgood relative to the first row of the table. In the followingtable, enter this difference in the boxes across the last row(marked "Increase in Consumption").\table[[,Everglades,Yosemite],[Pistachios (Millions ofpounds),Chinos (Millions of pairs),Pistachios (Millions ofpounds),Chinos (Millions of pairs)],[WithoutTrade],[Production,12,16,6,36],[Consumption,12,16,6,36],[WithTrade],[Production,,,,],[Trade action,
?,
?,
?,
?
