3. Gains from trade Suppose there exist two imaginary countries, Denali and Congaree. Their labor forces are each capable of supplying four million hours per day 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 of labor. Suppose that initially Denall uses 1 miliion hours of labor per day to produce chinos and 3 million hours per day to produce pistachios, while Congaree uses 3 million hours of labor per day to produce chinos and 1 million hours per day to produce pistachios. As a result, Denall produces 6 million pairs of chinos and 36 mililon pounds of pistachios, and congaree produces 12 million pairs of chinos and 16 million pounds of pistachios. Assume there are no other countres wiling to engage in trade, so, in the absence of trade between these two countries, each country consumes the amount of chinos and pistachios it produces: Denali's opportunity cost of producing 1 pair of chinos is of pistechios, and Congaree's opportunity cost of producing 1 pair of chinas is. of pistachios. Therefore, has a comparative advantage in the production of chinos, and comparatve 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 mililon pairs per day, and the country that produces plstachios will produce milison pounds per day. In the following table, enter esch country's production decision on the thind row of the cable (marked "Production'? Suppose the country that produces chinos trades 14 mitwon pairs of chinos to the other country in exchange for 42 malion pounds of pistachios. 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 firal consumption of each good on the Nne marked "Consumption." When the two countries did not specialize, the total production of chinos was 18 million pairs per day, 15 did the total production of pistachios was 52 million pounds per day. Becouse of specialization, the total production of chinos has increased by milion pairs per day, and the total production of pistachios has increased by mililon pounds per day. Because the two countries produce more chinos and more pistachios under specialzation, each country is able to gain from trade. Cakculate 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 "fncrease in Consumption?
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3- Gains from trade Suppose there exist two imaginary countries- Denal.docx
1. 3. Gains from trade Suppose there exist two imaginary countries, Denali and Congaree. Their
labor forces are each capable of supplying four million hours per day 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 of labor. Suppose that initially Denall uses
1 miliion hours of labor per day to produce chinos and 3 million hours per day to produce
pistachios, while Congaree uses 3 million hours of labor per day to produce chinos and 1 million
hours per day to produce pistachios. As a result, Denall produces 6 million pairs of chinos and 36
mililon pounds of pistachios, and congaree produces 12 million pairs of chinos and 16 million
pounds of pistachios. Assume there are no other countres wiling to engage in trade, so, in the
absence of trade between these two countries, each country consumes the amount of chinos and
pistachios it produces: Denali's opportunity cost of producing 1 pair of chinos is of pistechios,
and Congaree's opportunity cost of producing 1 pair of chinas is. of pistachios. Therefore, has a
comparative advantage in the production of chinos, and comparatve 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 mililon pairs per day, and the country that produces plstachios will
produce milison pounds per day. In the following table, enter esch country's production decision
on the thind row of the cable (marked "Production'? Suppose the country that produces chinos
trades 14 mitwon pairs of chinos to the other country in exchange for 42 malion pounds of
pistachios. 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 firal
consumption of each good on the Nne marked "Consumption." When the two countries did not
specialize, the total production of chinos was 18 million pairs per day, 15 did the total production
of pistachios was 52 million pounds per day. Becouse of specialization, the total production of
chinos has increased by milion pairs per day, and the total production of pistachios has increased
by mililon pounds per day. Because the two countries produce more chinos and more pistachios
under specialzation, each country is able to gain from trade. Cakculate 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 "fncrease in Consumption?
