Question

Class Exercise Absolute Advantage& Comparative Advantage ECON4850/5850 . After a shipwreck there are only two survivors Robinson and Friday who are washed ashore on opposite ends of a deserted island. Initially they are unaware of each other, so each is forced to become completely self- sufficient. And there are only two kinds of food on the island: fish and berries. Table below shows how much time it takes for each castaway to pick a cup of berries or catch one fish. For simplicity, we'll assume that the time requirement remains constant, no matter how much time is devoted to these activities. Suppose each of them works 12 hours per day 1 Cup of Berries 2 hours 1 hour 1 Fish 1 hour 3 hours Robinson Friday a. Graph the PPF of Robin and Friday separately in the following diagram 12346791112 b. Before they meet cach other, if each of them devotes half of their time to each food (6 hours on picking berries and 6 hours on catching fish), what is the output of berries and fish for Robinson and Friday separately? How about total output of berries and fish? Plot the total output point in the graph. c. What is the opportunity cost of catching one fish for Robinson? What is the opportunity cost of catching one fish for Friday? What is the opportunity cost of picking one cup of berries for Robinson? What is the opportunity cost of picking one cup of berries for Friday? Who has the comparative advantage in catching fish? Who has the comparative advantage in picking berries? d. Who should specialize in what production according to the law of comparative advantage? If they specialize in the production, what is the total output of berries and fish? Plot the new total output point in the graph.

Answer 1

a) Table given below shows production of berries and fish in 12 hours.

	Berries	Fish
Robinson	12/2 = 6 cups	12/1 = 12
Friday	12/1 = 12 cups	12/3 = 4

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b) Robinson:

In 6 hours, Cups of berries picked = 6/2 = 3

In 6 hours, no. of fish catches = 6/1 = 6

Friday;

In 6 hours, cups of berries picked = 6/1 = 6

In 6 hours, no. of fish catches = 6/3 = 2

Total output of berries = 3 + 6 = 9

Total output of fish = 6 + 2 = 8

c) Robinson;

12 fishes = 6 cups of berries

1 fish = 6/12 = 0.5 cups of berries

Opportunity cost of 1 fish is 0.5 cups of berries.

6 cups of berries = 12 fishes

1 cup of berry = 12/6 = 2 fish

Opportunity cost of 1 berry is 2 fish.

Friday;

4 fish = 12 berries

1 fish = 12/4 = 3 cups of berries

Opportunity cost of 1 fish is 3 cups of berries.

1 berry = 4/12 = 0.33 fish

Opportunity cost of 1 berry is 0.33 fish.

Comparative Advantage

A country has a comparative advantage in producing that good if the opportunity cost of producing that good is lower in that country as compared to another country.

Friday has comparative advantage in the production of berries while Robinson has comparative advantage in the production of fish.

d) Robinson specialized in the production of fish while Friday is specialized in the production of berries.

Total output of fish = 12 fishes

Total output of berries = 12 cups