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Question: consider two neighboring island countries called contente and dolorium they...

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Consider two neighboring island countries called Contente and Dolorium. They each have 4 million labor hours available per month that they can use to produce rye, jeans, or a combination of both. The following table shows the quantity of rye or jeans that can be produced using one hour of labor Rye (Bushels per hour of labor) 5 4 eans (Pairs per hour of labor) 10 16 Contente Dolorium Initially, suppose Contente uses 1 million hours of labor per month to produce rye and 3 million hours per month to produce jeans, while Dolorium uses 3 million hours of labor per month to produce rye and 1 million hours per month to produce jeans Consequently, Contente produces 5 million bushels of rye and 30 million pairs of jeans, and Dolorium produces 12 million bushels of rye and 16 million pairs of jeans. Assume there are no other countries willing to trade goods, so in the absence of trade between these two countries, each country consumes the quantity of rye and jeans it produces Contentes opportunity cost of producing one bushel of rye is producing one bushel of rye is production of rye and of jeans, and Doloriums opportunity cost of of jeans. Therefore, has a comparative advantage in the has a comparative advantage in the production of jeans Suppose that each country specializes entirely in the production of the good in which it has a comparative advantage, producing only that good. In this case, the country that produces rye will produce that produces jeans will produce production decision in the row labeled Production. bushels per month, and the country pairs per month. In the table at the end of this problem, enter each countrys Suppose the country that produces rye trades 13 million bushels of rye to the other country in exchange for 39 million pairs of jeans. In the table at the end of this problem, select the quantity of each good that each country exports and imports in the boxes across the row labeled Trade Action, and enter each countrys final consumption of each good in the row labeled Consumption.When the two countries did not specialize, the total production of rye was 17 million bushels per month and the total production of jeans was 46 million pairs per month. Because of specialization, the total production of rye has increased by bushels per month, and the total production of jeans has increased by pairs per month Because the two countries produce more rye and more jeans under specialization, each country is able to gain from trade. Calculate the gains from trade-in this case, the amount by which each country has increased its consumption of each good relative to the quantities given in the first row of the table. In the table, enter this difference in the row labeled Increase in consumption. Contente Dolorium Rye (Millions of bushels) Jeans Rye (Millions of bushels) Jeans (Millions of pairs) (Millions of pairs) Autarky Prod. and consumption 5 30 12 16 With Trade Production Trade Action Consumption Gains from Trade Increase in consumption

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