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Consider two neighboring Island countries called Arcadia and Dolorium. They each have 4 million labor hours available per week that they can use to produce
Consider two neighboring Island countries called Arcadia and Dolorium. They each have 4 million labor hours available per week that they can use to produce jeans, com, or a combination of both. The following table shows the amount of jeans or corn that can be produced using 1 hour of labor. Country Arcadia Dolorium Jeans Corn (Pairs per hour of labor) (Bushels per hour of labor) 16 8 5 20 Initially, suppose Arcadia uses 1 million hours of labor per week to produce jeans and 3 million hours per week to produce corn, while Dolorlum uses 3 million hours of labor per week to produce jeans and 1 million hours per week to produce corn. Consequently, Arcadia produces 8 million pairs of jeans 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 of jeans and corn it produces. Arcadia's opportunity cost of producing 1 pair of jeans is of corn, and Dolorium's opportunity cost of producing 1 pair of jeans is of corn. Therefore, has a comparative advantage in the production of jeans, and 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 week, and the country that produces corn will produce million bushels per week
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