Question

Consider two neighboring island countries called Euphoria and Contente. They each have 4 million labor hours available per week that they can use to produce corn, jeans, or a combination of both. The following table shows the amount of corn or jeans that can be produced using 1 hour of labor.
Country Corn (Bushels per hour of labor) Jeans (Pairs per hour of labor)
Euphoria 4 16
Contente 6 12

Initially, suppose Contente uses 1 million hours of labor per week to produce jeans and 3 million hours per week to produce corn, while Euphoria uses 3 million hours of labor per week to produce jeans and 1 million hours per week to produce corn. Consequently, Euphoria produces 12 million pairs of jeans and 16 million bushels of corn, and Contente produces 6 million pairs of jeans and 36 million bushels of corn. 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 jeans and corn it produces.

Euphoria's opportunity cost of producing 1 bushel of corn is___________ pair of jeans, and Contente's opportunity cost of producing 1 bushel of corn is__________ pair of jeans. Therefore,___________ has a comparative advantage in the production of corn, and__________ has a comparative advantage in the production of jeans.

Answer 1

Answer:

4

2

Contente

Euphoria

Explanation:

Euphoria's opportunity cost of producing 1 bushel of corn is $\frac{16}{4}$ = 4 pair of jeans, and Contente's opportunity cost of producing 1 bushel of corn is $\frac{12}{6}$ = 2 pair of jeans. Therefore,  Contente has a comparative advantage in the production of corn, and Euphoria  has a comparative advantage in the production of jeans.