Back to Assignment Attempts 05 0.8 Keep the Highest 013 I 4 3. Gains from trade Consider two neighboring island countries called Euphoria and Arcadia' They each have 4 million labor hours available per week that they can use to produce corn, jeans, or a combination of both. The following table shows the amount of corn orjeans that can be produced using 1 hour of labor. Corn Jeans Country (Bushei's per hour of labor) (Pairs per hour of labor) Euphoria 4 16 Arcadia 5 10 Initially, suppose Arcadia uses 1 million hours of labor per week to produce corn and 3 million hours per week to produce jeans, while Euphoria uses 3 million hours of labor per week to produce corn and 1 million hours per week to produce jeans. Consequently, Euphoria produces 12 million bushels of corn and 16 million pairs of jeans, and Arcadia produces 5 million bushels of corn and 30 million pairs of jeans. 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 corn and jeans it produces. Euphoria's opportunity cost of producing 1 bushel of corn is V of jeans, and Arcadia's opportunity cost of producing 1 bushel of corn is V ofjeans. Therefore, V has a comparative advantage in the production of corn, and V has a comparative advantage in the production ofjeans. Initially, suppose Arcadia uses 1 million hours of labor per week to produce corn and 3 million hours per week to produce jeans, while Euphoria uses 3 million hours of labor per week to produce corn and 1 million hours per week to produce jeans. Consequently, Euphoria produces 12 million bushels of corn and 16 million pairs of jeans, and Arcadia produces 5 million bushels of corn and 30 million pairs ofjeans. 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 corn and jeans it produces. Euphoria's opportunity cost of producing 1 bushel of corn is V of jeans, and Arcadia's opportunity cost of producing 1 bushel of corn is v ofjeans. Therefore, V has a comparative advantage in the production of corn, and V has a comparative advantage in the production ofjeans. 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 corn will produces million bushels per week, and the country that produces jeans will produce E million pairs per week. In the following table, enter each country's production decision on the third row of the table (marked \"Froduction\"). Suppose the country that produces corn trades 13 million bushels of corn to the other country in exchange for 39 million pairs ofjeans. 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 nal consumption of each good on the line marked \"Consumption.\" When the two countries did not specialize, the total production of corn was 17 million bushels per week, and the total production of jeans was 46 million pairs per week. Because of specialization, the total production of corn has increased by\\:|million bushels per week, and the total production of jeans has increased by |:| million pairs per week. Because the two countries produce more corn and more jeans under specialization, each country is able to gain from trade. Calculate the gains from tradeMaris, the amount by which each country has increased its consumption of each good relative to the rst row of the table. In the following table, enter this difference in the boxes across the last row (marked \"Increase in Consumption\"). Euphoria Arcadia Corn Jeans Corn Jeans (Millions of bushels) (Millions of pairs) (Millions of bushels) (Millions of pairs) Without Trade Production 12 16 30 Consumption 12 16 30 With Trade Production Trade action Consumption Gains from Trade m|m m|m m|mw m|m Increase in Consumption