Suppose there exist two imaginary countries, Yosemite and Everglades. Their labor forces are each capable of supplying four million hours per day that can be used to produce chinos, pistachios, or some combination of the two. The following table shows the amount of chinos or pistachios that can be produced by one hour of labor.
Chinos Pistachios
Country (Pairs per hour of labor) (Pounds per hour of labor)
Yosemite 8 16
Everglades 5 20
Suppose that initially Yosemite uses 1 million hours of labor per day to produce chinos and 3 million hours per day to produce pistachios, while Everglades uses 3 million hours of labor per day to produce chinos and 1 million hours per day to produce pistachios. As a result, Yosemite produces 8 million pairs of chinos and 48 million pounds of pistachios, and Everglades produces 15 million pairs of chinos and 20 million pounds of pistachios. Assume there are no other countries willing to engage in trade, so, in the absence of trade between these two countries, each country consumes the amount of chinos and pistachios it produces.
Yosemite's opportunity cost of producing 1 pair of chinos is $\boxed{2}$ of pistachios, and Everglades's opportunity cost of producing 1 pair of chinos is $\boxed{4/5}$ of pistachios. Therefore, $\boxed{Yosemite}$ has a comparative advantage in the production of chinos, and $\boxed{Everglades}$ has a comparative advantage in the production of pistachios.
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 chinos will produce $\boxed{20}$ million pairs per day, and the country that produces pistachios will produce $\boxed{80}$ million pounds per day.
In the following table, enter each country's production decision on the third row of the table (marked "Production").
Suppose the country that produces chinos trades 18 million pairs of chinos to the other country in exchange for 54 million pounds of pistachios.
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 chinos was 23 million pairs per day, and the total production of pistachios was 68 million pounds per day. Because of specialization, the total production of chinos has increased by $\boxed{17}$ million pairs per day, and the total production of pistachios has increased by $\boxed{12}$ million pounds per day.
Because the two countries produce more chinos and more pistachios under specialization, each country is able to gain 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, enter this difference in the boxes across the last row (marked "Increase in Consumption").
Without Trade Yosemite Everglades
Production Chinos Pistachios Chinos Pistachios
(Millions of pairs) (Millions of pounds) (Millions of pairs) (Millions of pounds)
8 48 15 20
Consumption 8 48 15 20
With Trade
Production
Trade action
Consumption
Gains from Trade
Increase in Consumption
