3. Gains from trade

Consider two neighboring island countries called Bellissima and Euphoria. 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) Bellissima 8 16 Euphoria 5 20 Bellissima Euphoria Jeans Corn Jeans Corn ( Millions of pairs) (Millions of bushels) ( Millions of pairs) (Millions of bushels) Without Trade Production 8 48 15 20 Consumption 8 48 15 20 With Trade Production Trade action v v v v Consumption Gains from Trade Increase in Consumption