Hello, I need help checking my answers and answering the increase in consumption question in the end.
4 . Gains from trade Consider two neighboring island countries called Euphoria and Arcadia. They each have 4 million labor hours available per month that they can use to produce jeans, rye, or a combination of both. The following table shows the amount of jeans or rye that can be produced using 1 hour of labor. Jeans Rye Country (Pairs per hour of labor) (Bushels per hour of labor) Euphoria 8 32 Arcadia 12 24 Initially, suppose Arcadia uses 1 million hours of labor per month to produce jeans and 3 million hours per month to produce rye, while Euphoria uses 3 million hours of labor per month to produce jeans and 1 million hours per month to produce rye. Consequently, Euphoria produces 24 million pairs of jeans and 32 million bushels of rye, and Arcadia produces 12 million pairs of jeans and 72 million bushels of rye. 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 rye it produces. Euphoria's opportunity cost of producing 1 pair of jeans is 4 bushels v of rye, and Arcadia's opportunity cost of producing 1 pair of jeans is 2 bushels V of rye. Therefore, Arcadia V has a comparative advantage in the production of jeans, and Euphoria V has a comparative advantage in the production of rye. 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 48 million pairs per month, and the country that produces rye will produce 128 million bushels per month. In the following table, enter each country's production decision on the third row of the table (marked "Production"). Suppose the country that produces jeans trades 26 million pairs ofjeans to the other country in exchange for 78 million bushels of rye. 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 jeans was 36 million pairs per month, and the total production of rye was 104 million bushels per month. Because of specialization, the total production of jeans has increased by 12 million pairs per month, and the total production of rye has increased by 24 million bushels per month. Because the two countries produce more jeans and more rye 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 table. In the following table, enter this difference in the boxes across the last row (marked "Increase in Consumption "). Euphoria Arcadia Jeans Rye Jeans Rye ( Millions of pairs) (Millions of bushels) ( Millions of pairs) (Millions of bushels ) Without Trade Production 24 32 12 72 Consumption 24 32 12 72 with Trade Production 0 128 48 0 Trade action Imports 26 V Exports 78 V Exports 26 V Imports 78 V Consumption 26 50 22 7B Gains from Trade Increase in Consumption
