Consider two neighboring island countries called Bellissima and Dolorium. They each have 4 million labor hours available per week that they can use to produce rye, jeans, or a combination of both. The following table shows the amount of rye or jeans that can be produced using 1 hour of labor: Country Jeans Rye
(Pairs per hour of labor) (Bushels per hour of labor)
Bellissima 6 12
Dolorium 4 16
Initially, suppose Bellissima uses 1 million hours of labor per week to produce jeans and 3 million hours per week to produce rye, while Dolorium uses 3 million hours of labor per week to produce jeans and 1 million hours per week to produce rye. Consequently, Bellissima produces 6 million pairs of jeans and 36 million bushels of rye, and Dolorium produces 12 million pairs of jeans and 16 million bushels of rye. 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 rye and jeans it produces.
(A) Bellissima's opportunity cost of producing 1 pair of jeans (1/2 bushel, 4 bushel, 2 bushel, 1/4 bushel) of rye, and Dolorium's opportunity cost of producing 1 pair of jeans is (1/2 bushel, 4 bushel, 2 bushel, 1/4 bushel) of rye. Therefore, (Bellissima, Dolorium) has a comparative advantage in the production of jeans, and (Bellissima, Dolorium) has a comparative advantage in the production of rye.
(B) 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 (48 million, 64 million, 16 million, 24 million) million pairs of jeans per week, and the country that produces rye will produce (48 million, 64 million, 16 million, 24 million) million bushels of rye 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 rye trades 14 million pairs of jeans to the other country in exchange for 42 million bushels of rye.
(C) 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.'
(D) When the two countries did not specialize, the total production of rye was 18 million bushels per week, and the total production of jeans was 52 million pairs per week. Because of specialization, the total production of jeans has increased by (6 million, 9 million, 12 million, 3 million) million pairs of jeans per week, and the total production of rye has increased by (24 million, 12 million, 16 million, 18 million) million bushels of rye per week.