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Consider two neighboring island countries called Euphoria and Bellissima. They each have 4 million labor hours available per week that they can use to produce rye, jeans, or a combination of both. The following table shows the amount of rye or jeans that can be produced using 1 hour of labor. Rye Jeans Country (Bushels per hour of labor) (Pairs per hour of labor) Euphoria 8 32 Bellissima 12 24 Initially, suppose Bellissima uses 1 million hours of labor per week to produce rye and 3 million hours per week to produce jeans, while Euphoria uses 3 million hours of labor per week to produce rye and 1 million hours per week to produce jeans. Consequently, Euphoria produces 24 million bushels of rye and 32 million pairs of jeans, and Bellissima produces 12 million bushels of rye and 72 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 rye and jeans it produces. Euphoria's opportunity cost of producing 1 bushel of rye is 4 pairs of jeans, and Bellissima's opportunity cost of producing 1 bushel of rye is 2 pairs of jeans. Therefore, Bellissima _ has a comparative advantage in the production of rye, and Euphoria has a comparative advantage in the production of jeans. 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 rye will produce million bushels per week, and the country that produces jeans will produce million pairs per week. In the following table, enter each country's production decision on the third row of the table (marked "Production"). Suppose the country that produces rye trades 26 million bushels of rye to the other country in exchange for 78 million pairs of jeans.when the two counties did not specialize, the total production of rye was 36 million bushels per week, and die total production of jeans was 104 million pairs per week. Because of specialization, the total production of rye has increased by E million bushels per week, and die total production of jeans has increased by E million pairs per week. Because the two countries produce more rye and more jeans under specialization, each country is able to gain from trade. Calculate the gains from tradethat is, the amount by which eadi countryr 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'j. Euphoria Bellissima Rye Jeans Rye Jeans (Millions of bushels J ( Millions of pairs ) (Millions of bushels J ( Millions of pairs ) without Trade Production 24 32 12 72 Consumption 24 32 12 72 1with Trade Production E Trade action V E Consumption E E E Gains from Trade Increase in Consumption E
