Consider two neighbouring island countries called Auva'a and Tatola. They each have 4 thousand labour 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 labour.

Country	Jeans (pairs per hour of labour)	Corn (bushels per hour of labour)
Auva'a	8	32
Tatola	12	24

Initially, imagine that Auva'a uses 3 thousand hours of labour per week to produce jeans and 1 thousand hours per week to produce corn, while Tatola uses 1 thousand hours of labour per week to produce jeans and 3 thousand hours per week to produce corn. Consequently, Auva'a produces 24 thousand pairs of jeans and 32 thousand bushels of corn per week, while Tatola produces 12 thousand pairs of jeans and 72 thousand bushels of corn per week. 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.

Auva'a's opportunity cost of producing 1 pair of jeans is Answer0.5 of a bushel of corn2 bushels of corn0.25 of a bushel of corn4 bushels of corn

and Tatola's opportunity cost of producing 1 pair of jeans isAnswer0.5 of a bushel of corn2 bushels of corn0.25 of a bushel of corn4 bushels of corn

. ThereforeAnswerAuva'aTatolaboth countriesneither country

has a comparative advantage in the production of jeans, andAnswerAuva'aTatolaboth countriesneither country

has a comparative advantage in the production of corn.

Imagine that each country completely specialises in the production of the good in which it has a comparative advantage, producing onlythat good. In this case, the country that produces jeans will produce Answer thousand pairs per week, and the country that produces corn will produce Answer thousand bushels per week.

In the following table, enter each country's production decision on the third row of the table (marked "Production").

Imagine the country that produces jeans trades 26 thousand pairs of jeans to the other country in exchange for 78 thousand bushels of corn.

In the following table, select the amount of each good that the 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 specialise, the total production of jeans was 36 thousand pairs per week, and the total production of corn was 104 thousand bushels per week. Because of specialisation, the total production of jeans has increased by Answer thousand pairs per week, and the total production of corn has increased by Answer thousand bushels per week.

Because the two countries produce more jeans and more corn under specialisation, each country is able to gain from specialisation.

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").

	Auva'a	Auva'a	Tatola	Tatola
	Jeans (thousands of pairs)	Corn (thousands of bushels)	Jeans (thousands of pairs)	Corn (thousands of bushels)
Without Trade
Production	24	32	12	72
Consumption	24	32	12	72
With Trade
Production	Answer	Answer	Answer	Answer
Trade action	Answerexports 26imports 26exports 78imports 78	Answerexports 26imports 26exports 78imports 78	Answerexports 26imports 26exports 78imports 78	Answerexports 26imports 26exports 78imports 78
Consumption	Answer	Answer	Answer	Answer
Gains from Trade
Increase in Consumption	Answer	Answer	Answer	Answer