Assume Haiti and Antigua are the only two countries that produce and consume fish and sugar....

Assume Haiti and Antigua are the only two countries that produce and consume fish and sugar. In a single year, Haiti can catch 50 tons of fish or produce 500 bags of sugar. In the same growing season, Antigua can catch 50 tons of fish or produce 750 bags of sugar. When the two countries begin trading fish for sugar, we expect the price of fish in Haiti:

Expert Solution

Given,

In a given year, Haiti can catch 50 tons of Fish or produce 500 bags of sugar.

The opportunity cost of catching 1 ton of fish in Haiti = 500/50 = 10 bags of sugar

The opportunity cost of production 1 bag of sugar in Haiti = 50/500 = 0.10 tons of fish

Antigua can catch 50 tons of Fish or produce 750 bags of sugar.

The opportunity cost of catching 1 ton of fish in Antigua = 750/50 = 15 bags of sugar

The opportunity cost of production 1 bag of sugar in Antigua = 50/750 = 0.067 tons of fish

By virtue of having lower opportunity costs respectively, Haiti has a comparative advantage in catching fish while Antigua has a comparative advantage in producing sugar.

Therefore, Haiti specializes in catching fish and hence exports fish. In an exporting country, the price of the good that is exported increases(compared to the domestic equilibrium price) as the excess supply has to be exported to the other country.

Ans: When the two countries start trading, the price of fish in Haiti is expected to rise.

Rahul Sunny answered 7 months ago

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