Consider two neighboring island countries called Arcadia and

Consider two neighboring island countries called Arcadia and Dolorium. They each have 4 million labor hours available per month that they can use to produce jeans, corn, or a combination of both. The following table shows the amount of jeans or corn that can be produced using 1 hour of labor.

Initially, suppose Arcadia uses 1 million hours of labor per month to produce jeans and 3 million hours per month to produce corn, while Dolorium uses 3 million hours of labor per month to produce jeans and 1 million hours per month to produce corn. Consequently, Arcadia produces 8 million pairs of jeans and 48 million bushels of corn, and Dolorium produces 15 million pairs of jeans and 20 million bushels of corn. 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 corn it produces.

Arcadia\'s opportunity cost of producing 1 pair of jeans is 2 bushels of corn, and Dolorium\'s opportunity cost of producing 1 pair of jeans is 4 bushels of corn. Therefore, Arcadia has a comparative advantage in the production of jeans, and Dolorium has a comparative advantage in the production of corn.

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 ____ million pairs per month, and the country that produces corn will produce _____ 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 18 million pairs of jeans to the other country in exchange for 54 million bushels of corn.

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 final consumption of each good on the line marked \"Consumption.\"

When the two countries did not specialize, the total production of jeans was 23 million pairs per month, and the total production of corn was 68 million bushels per month. Because of specialization, the total production of jeans has increased by ____ million pairs per month, and the total production of corn has increased by_____million bushels per month.

Because the two countries produce more jeans and more corn under specialization, each country is able to gain from trade.

Solution

Arcadia has comparative advantage in the production of Jeans. So, it will specialize in the production of jeans.

In one hour, it can produce 8 pairs of jeans. So, in 4 million hours, it will be able to produce (4 million * 8) 32 million pairs of jeans.

Dolorium has comparative advantage in the production of corn. So, it will specialize in the production of corn.

In one hour, it can produce 20 bushels of corn. So, in 4 million hours, it will be able to produce (4 million * 20) 80 million bushels of corn.

So,

In this case, the country that produces jeans will produce 32 million pairs per month, and the country that produces corn will produce 80 million pairs per month.

Without specialization -

Total production of jeans = 23 million pairs per month

Total production of corn = 68 million bushels per month

With specialization -

Total production of jeans = 32 million pairs per month

Total production of corn = 80 million bushels per month

Increase in production of jeans = 32 million - 23 million = 9 million

Increase in production of corn = 80 million - 68 million = 12 million
So,

Because of specialization, the total production of jeans has increased by 9 million pairs per month, and the production of corn has increased by 12 million bushels per month.