Gains from trade
Suppose there exist two imaginary countries, Denali and Sequoia. Their labor forces are each capable of supplying four million hours per day that can be used to produce almonds, shorts, or some combination of the two. The following table shows the amount of almonds or shorts that can be produced by one hour of labor:
Country
Almonds (pounds per hour of labor)
Shorts (pairs per hour of labor)
Denali
8
16
Sequoia
5
20
Suppose that initially Denali uses 1 million hours of Labor per day to produce almonds and 3 m illion hours per day to produce shorts, while Sequoia uses 3 million hours of labor per day to produce almonds and 1 million hours per day to produce shorts. As a result, Denali produces 8 million pounds of almonds and 48 million pairs of shorts, and Sequoia produces 15 million pounds of almonds and 20 million pairs of shorts. 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 almonds and shorts it produces.
Country
Almonds produced (million pounds)
Shorts produced (million pairs)
Denali
8
48
Sequoia
15
20
Denal’s opportunity cost of producing 1 pound of almonds is ◻ of shorts, and Sequoia’s opportunity cost of producing 1 pound of almonds is ◻ of shorts. Therefore, ◻ has a comparative advantage in the production of almonds, and ◻ has a comparative advantage in the production of shorts.
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 almonds will produce ◻ million pairs per day. million pounds per day, and the country that produces shorts will produce ◻
In the following table, enter each country’s production decision on the third row of the table (marked)
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