can you help me answer only the highlighted in the attached please 3. Gains from tradeConsider two neighboring island countries called Felicidad and Contente. They each have 4 million labor hours available per week that they can use toproduce 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.JeansCornCountry(Pairs per hour of labor)(Bushels per hour of labor)Felicidad520Contente816Initially, suppose Contente uses 1 million hours of labor per week to produce jeans and 3 million hours per week to produce corn, while Felicidad uses3 million hours of labor per week to produce jeans and 1 million hours per week to produce corn. Consequently, Felicidad produces 15 million pairs ofjeans and 20 million bushels of corn, and Contente produces 8 million pairs of jeans and 48 million bushels of corn. Assume there are no othercountries willing to trade goods, so, in the absence of trade between these two countries, each country consumes the amount of jeans and corn itproduces.Felicidad's opportunity cost of producing 1 pair of jeans is 4 bushels v of corn, and Contente's opportunity cost of producing 1 pair of jeans is2 bushels v of corn. Therefore, Contente v has a comparative advantage in the production of jeans, and Felicidad v has a comparativeadvantage 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. Inthis case, the country that produces jeans will produce32 million pairs per week, and the country that produces corn will produce80million bushels per week.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," andenter 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 week, and the total production of corn was 68 millionbushels per week. Because of specialization, the total production of jeans has increased bymillion pairs per week, and the total production ofcorn has increased bymillion bushels per week.Because the two countries produce more jeans and more corn under specialization, each country is able to gain from trade.

Comparative cost advantage: - it is a principle of international trade given by David Ricardo which…

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

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

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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