Suppose there exist two imaginary countries, Yosemite and
Sequoia. Their labor forces are each capable of supplying four
million hours per week that can be used to produce shorts, almonds,
or some combination of the two. The following table shows the
amount of shorts or almonds that can be produced by one hour of
labor. Country Shorts Almonds (Pairs per hour of labor) (Pounds per
hour of labor) Yosemite 8 16 Sequoia 5 20 Suppose that initially
Yosemite uses 1 million hours of labor per week to produce shorts
and 3 million hours per week to produce almonds, while Sequoia uses
3 million hours of labor per week to produce shorts and 1 million
hours per week to produce almonds. As a result, Yosemite produces 8
million pairs of shorts and 48 million pounds of almonds, and
Sequoia produces 15 million pairs of shorts and 20 million pounds
of almonds. Assume there are no other countries willing to engage
in trade, so, in the absence of trade between these two countries,
each country consumes the amount of shorts and almonds it produces.
Yosemite's opportunity cost of producing 1 pair of shorts is of
almonds, and Sequoia's opportunity cost of producing 1 pair of
shorts is of almonds. Therefore, has a comparative advantage in the
production of shorts, and has a comparative advantage in the
production of almonds. 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 shorts will produce million pairs per week,
and the country that produces almonds will produce million pounds
per week. In the following table, enter each country's production
decision on the third row of the table (marked “Production”).
Suppose the country that produces shorts trades 18 million pairs of
shorts to the other country in exchange for 54 million pounds of
almonds. 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 shorts was 23
million pairs per week, and the total production of almonds was 68
million pounds per week. Because of specialization, the total
production of shorts has increased by million pairs per week, and
the total production of almonds has increased by million pounds per
week. Because the two countries produce more shorts and more
almonds under specialization, each country is able to gain from
trade. Calculate the gains from trade—that is, the amount by which
each country has increased its consumption of each good relative to
the first row of the table. In the following table, enter this
difference in the boxes across the last row (marked “Increase in
Consumption”). Yosemite Sequoia Shorts Almonds Shorts Almonds
(Millions of pairs) (Millions of pounds) (Millions of pairs)
