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Suppose there exist two imaginary countries, Sequoia and Glacier. Their labor forces are each capable of supplying four million hours per week that can be
Suppose there exist two imaginary countries, Sequoia and Glacier. Their labor forces are each capable of supplying four million hours per week that can be used to produce chinos, pistachios, or some combination of the two. The following table shows the amount of chinos or pistachios that can be produced by one hour oflabor. chinos Pistachios ICountr'yr (Pa r'rs per hour of labor) (Pounds per hour of labor) Sequoia 5 20 Glacier B 1 6 Suppose that initially Glacier uses 1 million hours of labor per week to produce chinos and 3 million hours per week to produce pistachios, while Sequoia uses 3 million hours oflabor per week to produce chinos and 1 million hours per week to produce pistachios. As a result, Sequoia produces 15 million pairs of chinos and 20 million pounds of pistachios, and Glacier produces 8 million pairs of chinos and 48 million pounds of pistachios. Assume there are no other countries willing to engage in trade, so, in the absence oftrade between these two countries, each country consumes the amount of chinos and pistachios it produces. Sequoia's opportunity cost of producing 1 pair of chinos is V of pistachios, and Glacier's opportunity cost of producing 1 pair of chinos is V of pistachios. Therefore, V has a comparative advantage in the production of chinos, and V has a comparative advantage in the production of pistachios. 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 chinos will produce|:|million pairs per week, and the country that produces pistachios will produce |:| million pounds per week
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