Gains from trade

Suppose there exist two imaginary countries, Glacier and Sequoia. Their labor forces are each capable of supplying four million hours per day that can be used to produce shorts, almonds, or some combination of the two. The following table shows the amount of shorts or almonds that can be produced by one hour of labor.

$\backslash$table$[[,$Shorts,Almonds$],[$Country$,($Pairs per hour of labor$),($Pounds per hour of labor$)],[$Glacier$,6,12],[$Sequoia$,4,16]]$

Suppose that initially Glacier uses $1$ million hours of labor per day to produce shorts and $3$ million hours per day to produce almonds, while Sequoia uses $3$ million hours of labor per day to produce shorts and $1$ million hours per day to produce almonds. As a result, Glacier produces $6$ million pairs of shorts and $36$ million pounds of almonds, and Sequoia produces $12$ million pairs of shorts and $16$ million pounds of almonds. 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 shorts and almonds it produces.

Glacier's opportunity cost of producing $1$ pair of shorts is of almonds, and Sequoia's opportunity cost of producing $1$ pair of shorts is of almonds. Therefore, has a comparative advantage in the production of shorts, and has a comparative advantage in the production of almonds.

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 shorts will produce million pairs per day, and the country that produces almonds will produce million pounds per day.

In the following table, enter each country's production decision on the third row of the table $($marked "Production"$).$

Suppose the country that produces shorts trades $14$ million pairs of shorts to the other country in exchange for $42$ million pounds of almonds.

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 shorts was $18$ million pairs per day, and the total production of almonds was $52$ million pounds per day. Because of specialization, the total production of shorts has increased by million pairs per day, and the total production of almonds has increased by million pounds per day.

Because the two countries produce more shorts and more almonds under specialization, each country is able to gain from trade.

million pounds per day. Because of specialization, the total production of shorts has increased by million pairs per day, and the total production of almonds has increased by million pounds per day.

Because the two countries produce more shorts and more almonds 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"$).$

$\backslash$table$[[,\backslash$table$[[$Shorts$],[($Millions of pairs$)]],\backslash$table$[[$Almonds$],[($Millions of pounds$)]],,\backslash$table$[[$Shorts$],[($Millions of pairs$)]],\backslash$table$[[$Almonds$],[($Millions of pounds$)]]],[$Without Trade,$6,36,12,16,],[$Production$,6,36,12,16,],[$Consumption$,,,,,],[$With Trade,,,,,$],[$Production$,,,,,],[$Trade action,,,,,$],[$Consumption$,,,,,],[$Gains from Trade,,,,,$],[$Increase in Consumption,,,,,$]]$