4 . Absolute and comparative advantage

Consider two neighboring island countries, Charisma and Euclidia. Each has 900,000 labor hours available per week that it can use to produce jeans, corn, or a combination of both. The following table shows the amount of labor hours required to produce 1 pair of jeans or 1 bushel of corn.

Country	Jeans	Corn
(Labor hours per pair)	(Labor hours per bushel)
Charisma	40	10
Euclidia	36	6

has an absolute advantage in the production of jeans, and has an absolute advantage in the production of corn.

Initially, suppose Charisma uses 225,000 hours of labor per week to produce jeans and 675,000 hours per week to produce corn, while Euclidia uses 675,000 hours of labor per week to produce jeans and 225,000 hours per week to produce 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.

Charisma's opportunity cost of producing 1 pair of jeans is of corn, and Euclidia's opportunity cost of producing 1 pair of jeans is of corn. Therefore, has a comparative advantage in the production of jeans, and has a comparative advantage in the production of corn.

When neither country specializes, the total production of jeans is

pairs per week, and the total production of corn is

bushels per week.

Suppose that Charisma completely specializes in the production of the good in which it has a comparative advantage, producing onlythat good. It will produce

. Suppose also that Euclidia does not specialize and uses 225,000 hours of labor to produce jeans and 675,000 hours of labor to produce corn. It will produce

pairs of jeans and

bushels of corn.

Suppose Charisma and Euclidia agree to trade with each other, exchanging 14,000 pairs of jeans for 70,000 bushels of corn. In particular, Charisma will export the goods it produces, and Euclidia will export the goods that Charisma does not produce.

With trade, Charisma will jeans and corn. Euclidia will jeans and corn.

When Charisma specializes and Euclidia still produces the combination of goods using 225,000 hours of labor to produce jeans and 675,000 hours of labor to produce corn, the total production of jeans becomes

pairs per week, and the total production of corn becomes

bushels per week.