#Module Two Quiz3. Gains from tradeSuppose there exist two imaginary countries, Glacier andSequoia. Their labor forces are each capable of supplyingfour million hours per day that can be used to produce= pistachios, chinos, or some combination of the two. Thefollowing table shows the amount of pistachios or chinosthat can be produced by one hour of labor.€PistachiosChinosCountry (Pounds per hour of labor) (Pairs per hour of labor)24GlacierSequoia32X128Suppose that initially Glacier uses 1 million hours of laborday to produce pistachios and 3 million hours per day toproduce chinos, while Sequoia uses 3 million hours of labper day to produce pistachios and 1 million hours per dayproduce chinos. As a result, Glacier produces 12 millionpounds of pistachios and 72 million pairs of chinos, andSequoia produces 24 million pounds of pistachios and 32million pairs of chinos. Assume there are no other countriewilling to engage in trade, so, in the absence of trade betwthese two countries, each country consumes the amountpistachios and chinos it produces.YYGlacier's opportunity cost of producing 1 pound of pistachis of chinos, and Sequoia's opportunity cost of producirpound of pistachios is of chinos. Therefore, has acomparative advantage in the production of pistachios, anhas a comparative advantage in the production of chinSuppose that each country completely specializes in theproduction of the good in which it has a comparativeadvantage, producing only that good. In this case, the couthat produces pistachios will produce million pounds pday, and the country that produces chinos will producemillion pairs per day.A-Z * In the following table, enter each country's production decison the third row of the table (marked "Production").@€Suppose the country that produces pistachios trades 26million pounds of pistachios to the other country in excharfor 78 million pairs of chinos.In the following table, select the amount of each good thateach country exports and imports in the boxes across the romarked "Trade Action," and enter each country's finalconsumption of each good on the line marked "Consumptio AWhen the two countries did not specialize, the totalproduction of pistachios was 36 million pounds per day, athe total production of chinos was 104 million pairs per daBecause of specialization, the total production of pistachihas increased by million pounds per day, and the totalproduction of chinos has increased bymillion pairper day.Because the two countries produce more pistachios andmore chinos under specialization, each country is able tofrom trade.Calculate the gains from trade-that is, the amount by whicheach country has increased its consumption of each goodrelative to the first row of the table. In the following table, enthis difference in the boxes across the last row (marked"Increase in Consumption").Without TradeProductionConsumptionWith TradeProductionTrade actionConsumptionGains from TradeIncrease in Consumption.GlacierPistachiosChinos(Millions of pounds) (Millions of pairs)127272Pistachios(Millions of pounds)24Sequoia24Chinos(Millions of pairs)3232O

Comparative advantage refers to the ability to produce goods and services at a lower opportunity…

In the following table, enter each country's production decis on the third row of the table (marked "Production"). Suppose the country that produces pistachios trades 26 million pounds of pistachios to the other country in exchar for 78 million pairs of chinos. In the following table, select the amount of each good that each country exports and imports in the boxes across the ro marked "Trade Action," and enter each country's final consumption of each good on the line marked "Consumptio When the two countries did not specialize, the total production of pistachios was 36 million pounds per day, a the total production of chinos was 104 million pairs per da Because of specialization, the total production of pistachi has increased by million pounds per day, and the total production of chinos has increased by million pain per day. Because the two countries produce more pistachios and more chinos under specialization, each country is able to g from trade. 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, en this difference in the boxes across the last row (marked "Increase in Consumption"). Without Trade Production Consumption With Trade Production Trade action Consumption Gains from Trade Increase in Consumption Pistachios (Millions of pounds) 12 Glacier 12 Chinos (Millions of pairs) 72 72 Sequoia Pistachios (Millions of pounds) 24 24 Chinos (Millions of pairs) 32 32 A-Z

14th Edition

ISBN:9781337794992

Author:William J. Baumol, Alan S. Blinder, John L. Solow

Publisher:William J. Baumol, Alan S. Blinder, John L. Solow

Chapter21: International Trade And Comparative Advantage

Section: Chapter Questions

Problem 2TY