Question

Suppose that you are on a desert Island and possess exactly 20 coconuts. Your neighbor, Friday, is a fisherman, and he is willing to trade 2 fish for every 1 coconut that you are willing to give him. Another neighbor, kwame, is also a fisherman, and he is willing to trade 3 fish for every 1 coconut a. On the diagram below, draw budget lines for trading with Friday and for trading with Kwame. Instructions: Use the tools provided "Fridayand 'Kwame' to draw two separate budget lines representing Friday's willingness to trade and kwame's willingness to trade, Tools Friday Coconuts 0 10 20 30 40 50 60 70 Fish

Answer 1

(a)

Friday is ready to exchange 2 fish for 1 coconut.

So, if we give him all 20 coconuts, we can get 40 fish.

Kwame is ready to exchange 3 fish for 1 coconut.

So, if we give him all 20 coconuts, we can get 60 fish.

Following is the required figure -

Coconuts Friday 0 10 20 40 50 60 70 30 Fish

(b)

Calculate the slope of budget line from trading with Friday -

Slope = -Maximum number of coconuts/Maximum number of fish

Slope = -20/40 = -1/2

The slope of budget line from trading with Friday is -1/2

(c)

Calculate the slope of budget line from trading with Kwame -

Slope = -Maximum number of coconuts/Maximum number of fish

Slope = -20/60 = -1/3

The slope of budget line from trading with Kwame is -1/3

(d)

The budget line from trading with Kwame features a larger set of attainable combination of coconuts and fish.

(e)

Kwame is offering more fish per coconut to us relative to Friday.

So,

We would rather trade with Kwame.