Consider two neighboring island countries: Arcadia and Felicidad. Each has 24,000 labor hours available per week that

Question:

Consider two neighboring island countries: Arcadia and Felicidad. Each has 24,000 labor hours available per week that it can use to produce wheat, jeans, or a combination of both. The following table shows the amount of labor hours required to produce one bushel of wheat or one pair of jeans.

Jeans Wheat Country (Labor hours per bushel) (Labor hours per pair) Arcadia 48 12 Felicidad 20 10

has an absolute advantage in the production of wheat, and _______ has an absolute advantage in the production of jeans.
Initially, suppose Arcadia uses 18,000 hours of labor per week to produce wheat and 6,000 hours per week to produce jeans, while Felicidad uses 6,000 hours of labor per week to produce wheat and 18,000 hours per week to produce jeans. 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 wheat and jeans it produces.
Arcadia's opportunity cost of producing one bushel of wheat is _____ of jeans, and Felicidad's opportunity cost of producing one bushel of wheat is_____ of jeans. Therefore, _______has a comparative advantage in the production of wheat, and _______ has a comparative advantage in the production of jeans.
When neither country specializes, the total production of wheat is_______ bushels per week, and the total production of jeans is_______ pairs per week.
Suppose that Arcadia completely specializes in the production of the good in which it has a comparative advantage, producing only that good. It will produce _____ . Suppose also that Felicidad does not specialize and now uses 18,000 hours of labor to produce wheat and 6,000 hours of labor to produce jeans (a new allocation of hours). It will produce______bushels of wheat and_______ pairs of jeans.
Suppose Arcadia and Felicidad agree to trade with each other, exchanging 1,300 bushels of wheat for 5,200 pairs of jeans. In particular, Arcadia will export the goods it produces and Felicidad will export the goods that Arcadia does not produce.
With trade, Arcadia will______ wheat and_____ jeans. Felicidad will _____ wheat and_______ jeans. (import/export)
When Arcadia specializes and Felicidad still produces the combination of goods using 18,000 hours of labor to produce wheat and 6,000 hours of labor to produce jeans, the total production of wheat becomes ______ bushels per week, and the total production of jeans becomes________pairs per week.

Opportunity Cost
Opportunity cost is the profit lost when one alternative is selected over another. The Opportunity Cost refers to the expected returns from the second best alternative use of resources that are foregone due to the scarcity of resources such as land,...