Back to Assignment Attempts I I Average / 4 3. Comparative advantage and gains from trade Consider two neighboring island countries called Contente and Dolorium. They each have 4 million labor hours available per month that they can use to produce jeans, corn, or a combination of both. The following table shows the amount ofjeans or corn that can be produced using 1 hour of labor. Jeans Corn Country (Pairs per hour of labor) (Bushels per hour of labor) Contente 8 16 Dolorium 5 20 Initially, suppose Contente uses 1 million hours of labor per month to produce jeans and 3 million hours per month to produce corn, while Dolorium uses 3 million hours of labor per month to produce jeans and 1 million hours per month to produce corn. Consequently, Contente produces 8 million pairs ofjeans and 48 million bushels of corn, and Dolorium produces 15 million pairs of jeans and 20 million bushels of corn. 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 ofjeans and corn it produces. Contente's opportunity cost of producing 1 pair ofjeans is v of corn, and Dolorium's opportunity cost of producing 1 pair ofjeans is V of corn. Therefore, V has a comparative advantage in the production ofjeans, and v has a comparative advantage in the production of corn. 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 jeans will produce million pairs per month, and the country that produces corn will produce million bushels per month. Homework (Ch 02) In the following table, enter each country's production decision on the third row of the table (labeled \"Production \"). Contente Dolorium Jeans Corn Jeans Corn (Millions of pairs) (Millions of bushels) (Millions of pairs) (Millions of bushels) Without Trade Production 8 48 1 5 20 Consumption 8 48 15 20 With Trade Production Imports] Exports V V Consumption Gains from Trade Increase in Consumption | Suppose the country that produces jeans trades 18 million pairs of jeans to the other country in exchange for 54 million bushels of corn. In the previous table, use the dropdown menus across the row labeled \"Imports/Exports" to select the amount of each good that each country imports and exports. Then enter each country's nal consumption of each good on the line labeled \"Consumption. \" When the two countries did not specialize, the total production ofjeans was 23 million pairs per month, and the total production of corn was 68 million bushels per month. Because of specialization, the total production of jeans has increased by C] million pairs per month, and the total production of corn has increased by million bushels per month. Because the two countries produce more jeans and more corn under specialization, each country is able to gain from trade. Calculate the gains from tradethat is, the amount by which each country has increased its consumption of each good relative to the rst row of the previous table. Enter this difference in the boxes across the last row (labeled "Increase in Consumption \")