(Solved): 2. Gains from trade Suppose there exist two imaginary countries, Yosemite and Everglades. Their la ...

2. Gains from trade Suppose there exist two imaginary countries, Yosemite and Everglades. Their labor forces are each capable of supplying four million hours per week 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. Suppose that initially Yosemite uses 1 million hours of labor per week to produce almonds and 3 million hours per week to produce shorts, while Everglades uses 3 million hours of labor per week to produce almonds and 1 million hours per week to produce shorts. As a result, Yosemite produces 8 million pounds of almonds and 48 million pairs of shorts, and Everglades 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. Yosemite's opportunity cost of producing 1 pound of almonds is of shorts, and Everglades'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 pounds per week, and the country that produces shorts will produce million pairs per week. Suppose the country that produces almonds trades 18 million pounds of almonds to the other country in exchange for 54 million pairs of shorts. 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 almonds was 23 million pounds per week, and the total prod million pairs per week. Because of specialization, the total production of almonds has increased by production of shorts has increased by million pairs per week. Because the two countries produce more almonds and more shorts 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").