Question

In: Economics

Peter and Laura are stranded on a tropical island. To feed themselves each day, they can...

Peter and Laura are stranded on a tropical island. To feed themselves each day, they can either catch fish or collect coconuts. In one day, Laura can collect 120 coconuts or catch 60 fish, while in one day, Peter can collect 75 coconuts, or catch 50 fish.
Determine who has each of the following, and explain why:
a. absolute advantage in collecting coconuts

b. absolute advantage in fishing

c. comparative advantage in collecting coconuts

d. comparative advantage in fishing

e. To benefit from trade, who would collect coconuts and who would fish?

Expert Solution

a) Laura

( Laura can collect 120 coconuts in a day while Peter can collect only 75. Absolute advantage refers to the ability to produce more than other country with the same cost. ln our case if refers to the ability to collect greater quantity of coconuts. Since Laura can collect 45 coconuts more than Peter, she has absolute advantage in collecting coconuts.)

b) Laura

( Since Laura can catch greater quantity of fishes ( 70-50=10) than Peter, she has absolute advantage in catching fish.)

c) Laura

d) Peter

e) Laura would collect cononuts and Peter would fish.

( Here, Laura has absolute advantage and Peter has absolute disadvantage in both catching fish and collecting coconuts. So trade is not possible based on the principle of absolute advantage. But comparative advantage theory states that mutually beneficial trade is possible even in the above mentioned situation. Comparative advantage should be taken as a criterion of trade.

Laura should exchange the commodity in which it's advantage is higher. It's evident that Laura's advantage is higher in collecting coconuts( 45 coconuts). Laura has comparative advantage in the collection of coconuts.

Peter should exchange the commodity in which his disadvantage is less . It's evident that, his disadvantage is less in catching fish.( Only 10 difference fish with Laura.) So, Peter has comparative advantage in the catching fish.

Trade would be beneficial if Laura exchanges coconuts for fish caught by Peter.)

in collecting coconuts.

Rahul Sunny answered 2 years ago

human nutrition topic; You are stranded on a tropical island that can grow all kinds of...

human nutrition topic; You are stranded on a tropical island that can grow all kinds of vegetation. You are in charge of what is grown on the farm for people that have diabetes, diverticulitis and heart disease. What 5 carbohydrate foods would you plant and why? There is a genetic predisposition for having diabetes however, what 2 health tips would you encourage the students in your class to follow to stay healthy and avoid getting diabetes in the future.

Crusoe finds himself stranded on an island. He devotes 10 hours each day to either gathering...

Crusoe finds himself stranded on an island. He devotes 10 hours each day to either gathering coconuts or catching fish. Crusoe can gather 2 coconuts in an hour, but he needs 5 hours to catch a single fish. On the other side of the island is Friday. Friday also devotes 10 hours each day to gathering coconuts and fishing. He can gather 3 coconuts per hour and needs only 2.5 hours to catch a fish. a. What is the opportunity...

Chuck and Crusoe are trapped on opposite sides of a tropical island. They each have 60...

Chuck and Crusoe are trapped on opposite sides of a tropical island. They each have 60 units of labor that they can spend on one of two activities: building shelters or fishing. Chuck can produce 1 unit of shelter with 5 units of labor, and can produce 2 units of fish with 1 unit of labor. Crusoe can produce 1 unit of shelter with 3 units of labor, and can produce 4 units of fish with 1 unit of labor....

How can a firm differentiate themselves? Think of an example of each of the 4 types...

How can a firm differentiate themselves? Think of an example of each of the 4 types we discussed in class.

Imagine an island with many people on it, each of whom can catch some number of...

Imagine an island with many people on it, each of whom can catch some number of fish or pick some number of coconuts (each person's numbers being different from the rest). Now imagine that they discover a new invention--the ladder! The ladder allows every person to pick twice as many coconuts as before. a. What happens to the marginal cost of fish for each person and what happens to the marginal cost of coconuts? b. Sketch the PPF and show...

An island has 2 reefs that are suitable for fishing and 20 fishermen. Each fisherman can...

An island has 2 reefs that are suitable for fishing and 20 fishermen. Each fisherman can fish on only one reef. The current institution is that a fisherman gets to keep the average number of fish caught from the reef on which he chose to fish. On reef 1 the total number of fish caught is given by F1(R1) = 12R1 − (R1)2/2, where R1 is the number of fishermen on reef 1. For reef 2 the relationship is F2(R2)...

In how many ways can John and his 11 friends divide themselves into two teams each...

In how many ways can John and his 11 friends divide themselves into two teams each consisting of 4 people, two teams each consisting of 2 people?

The amount of iron ore (in tons) which can be mined each day at various locations...

The amount of iron ore (in tons) which can be mined each day at various locations is known to be approximately normally distributed. Building a mine at any location is economically feasible if the mean production at that location is at least 20 tons per day. Samples of daily production at each of two locations are shown below. Location 1 sample daily production = {14, 16, 19, 26, 13} Location 2 sample daily production = {20, 24, 21, 11} Find...

Andrew and Beth can each spend 10 hours a day making bread or making shoes. Andrew...

Andrew and Beth can each spend 10 hours a day making bread or making shoes. Andrew makes 2 shoes an hour and Beth 3 shoes an hour. Andrew can bake 10 loaves an hour and Beth 9 loaves an hour. What is A's O.Cost making shoes in terms of bread? What is A's O.cost of bread in terms of shoes? Who has the relative (comparative) advantage in making shoes? Who has the relative (comparative) advantage in making bread?

A car insurance officer can handle up to 2 claims each working day without significant delays....

A car insurance officer can handle up to 2 claims each working day without significant delays. The average number of claims per working day is 1.7. Assume the number of claims can be modeled by a Poisson distribution. What is the probability that the insurance officer will have exactly 3 claims in a day. What is the probability that the insurance officer will have fewer than 44 claims in a month? Assume the month has 22 working days. c. Find...