Question

Both the United States and India produce two goods: tractors and rice. The IJnited States can produce either 8 tractors or 16 pounds of rice. India can produce either 4 tractors or 20 pounds of rice. Rice Country (pounds) Tractors Now suppose that both countries open up to trade, and the United States and India completely specialize in the production of the good for which each has a comparative advantage. Select... should produce rice. should produce tractors, and Select... United States India 16 20 8 4 Suppose that the United States and India decide to trade 1 tractor for 3 pounds of rice (IT = 3R) and that India needs 3 tractors. India's gains from trade are pound(s) of rice. The United States gains from trade are pound(s) of rice. tractor(s) and tractor(s) and (Do NOT press Enter after typing the answer in each cell. Use Tab or take the cursor to the next cell.)

Answer 1

United States can produce either 8 tractors or 16 pounds of rice. India can produce 4 tractors or 20 pounds of rice.

In USA, 8 tractors = 16 pounds of rice

1 tractor = 16/8 = 2 pounds of rice.

In India, 4 tractors = 20 pounds of rice

1 tractor = 20/4 = 5 pounds of rice

Therefore, USA sacrifice 2 pounds of rice for 1 tractor , India sacrifice 5 pounds of rice for 1 tractor. Therefore USA specialise in tractor production.

In USA , 16 pounds of rice = 8 tractors

1 pound of rice = 8/16 = 1/2 tractors

In India, 20 pounds of rice = 4 tractors

1 pound of rice = 4/20 = 1/5 tractors

USA sacrifice 1/2 tractor for 1 pound of rice and India sacrifice 1/5 tractor for 1 pound of rice. Therefore, India specialise in rice production.

USA should produce tractor and India should produce rice (Ans).

In specialise USA will produce 8 tractors and India will produce 20 pounds of rice.

If India and USA decides to trade 1 tractor = 3 pounds of rice.

If India needs 3 tractors then India need 3*3 = 9 pounds of rice. But before trade India would require 3*5 = 15 pounds of rice. Without trade India would have to sacrifice 15 pounds of rice but with trade India need to give 9 pounds of rice to USA.

So, India's gain = 15 - 9 = 6 pounds of rice. (Ans).

Now United State before trade 1 tractor = 2 pounds of rice.

Now, 3 tractors = 6 pounds of rice before trade

After trade when 1 tractor = 3 pounds of rice

So, 3 tractors = 3*3 = 9 pounds of rice.

Therefore gains from trade for USA is 9 - 6 = 3 pounds of rice. (Ans).

United State's gain is 3 pounds of rice or 1 tractor and India's gain from trade is 6 pounds rice or 2 tractors. (Ans).