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Suppose there exist two imaginary countries, Denali and Congaree

Suppose there exist two imaginary countries, Denali and Congaree. 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.

CountryAlmondsShorts
(Pounds per hour of labor)(Pairs per hour of labor)
Denali1224
Congaree832

Suppose that initially Denali uses 1 million hours of labor per day to produce almonds and 3 million hours per day to produce shorts, while Congaree 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 12 million pounds of almonds and 72 million pairs of shorts, and Congaree produces 24 million pounds of almonds and 32 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.

Denali’s opportunity cost of producing 1 pound of almonds is 2 pairs   of shorts, and Congaree’s opportunity cost of producing 1 pound of almonds is 4 pairs   of shorts. Therefore, Denali has a comparative advantage in the production of almonds, and Congaree   has a comparative advantage in the production of shorts.

Explanation:
Using an hour of labor, Denali can produce 12 pounds of almonds or 24 pairs of shorts. Therefore, the opportunity cost of a pound of almonds is 2 pairs per pound (24 pairs12 pounds). Using an hour of labor, Congaree can produce 8 pounds of almonds or 32 pairs of shorts. Therefore, the opportunity cost of a pound of almonds is 4 pairs per pound (32 pairs8 pounds). Since Denali gives up fewer pairs per pound of almonds, it has a comparative advantage in the production of almonds.
You can compute Denali's opportunity cost of a pair of shorts by taking the reciprocal of the opportunity cost of a pound of almonds. That is, the opportunity cost of a pair of shorts, in this case, is 1/2 pound per pair. Similarly, Congaree's opportunity cost of a pair of shorts is equal to 1/4 pound per pair. Since Congaree gives up fewer pounds of almonds per pair of shorts, it 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 48 million pounds per day, and the country that produces shorts will produce 128 million pairs per day.

Explanation:
Recall that Denali has a comparative advantage in the production of almonds and that Congaree has a comparative advantage in the production of shorts. If Denali completely specializes in the production of almonds, it produces 48 million pounds of almonds (4 million hours×12 pounds of almonds per hour
). Similarly, if Congaree completely specializes in the production of shorts, it produces 128 million pairs of shorts (4 million hours×32 pairs of shorts per hour).

Suppose the country that produces almonds trades 26 million pounds of almonds to the other country in exchange for 78 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 36 million pounds per day, and the total production of shorts was 104 million pairs per day. Because of specialization, the total production of almonds has increased by 12 million pounds per day, and the total production of shorts has increased by 24 million pairs per day

Explanation:
When they specialize, Denali produces 48 million pounds of almonds per day, and Congaree produces 128 million pairs of shorts per day. If Denali trades 26 million pounds of almonds for 78 million pairs of shorts from Congaree, Denali will consume 22 million pounds of almonds and 78 million pairs of shorts, and Congaree will consume 26 million pounds of almonds and 50 million pairs of shorts.
Note that when a country imports goods, it brings them into the country. In this case, the consumption of that good must be larger than what the country produces itself. Similarly, when a country exports goods, it sends them out of the country. In this case, the consumption of that good must be smaller than what the country produces itself.

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”).

Suppose there exist two imaginary countries, Denali and Congaree
Explanation:
Initially, before the two countries specialized, Denali produced (and consumed) 12 million pounds of almonds and 72 million pairs of shorts per day, and Congaree produced (and consumed) 24 million pounds of almonds and 32 million pairs of shorts per day.
When they specialized, Denali produced 48 million pounds of almonds per day, and Congaree produced 128 million pairs of shorts per day. This is an increase of 12 million pounds of almonds and 24 million pairs of shorts per day. If Denali trades 26 million pounds of almonds for 78 million pairs of shorts from Congaree, both countries will end up consuming more of both goods. In particular, there will be an increase of 10 million pounds of almonds and 6 million pairs of shorts for Denali and an increase of 2 million pounds of almonds and 18 million pairs of shorts for Congaree.
You can also see how each country gains from trade by using a production possibilities frontier (PPF) diagram. The blue lines on the following diagrams show the PPFs of Denali and Congaree. The black points (plus symbol) show their initial consumption of almonds and shorts. The orange points (square symbol) show the amount of almonds and shorts each consumes after specialization and trade.
Suppose there exist two imaginary countries, Denali and Congaree
Note that the total gains from trade are 12 million pounds of almonds and 24 million pairs of shorts per day, which is the total increase in production you calculated earlier. Visually, you can see that there are gains from trade, because countries are able to consume at points that were previously not feasible (that is, points outside of their PPF).

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