Question

Suppose individuals A, B and C are on a stranded island. There are no other people on the island except for A, B and C. Each of them can only do two activities to survive: either gather coconuts or catch fish. Individual A can either gather 10 coconuts or catch 16 fish; individual B can either gather 8 coconuts or catch 10 fish and individual C can either gather 20 coconuts or catch 20 fish. Assume that all three of these individuals have linear production possibility frontiers.

a) Who has the absolute advantage in catching fish and who has the absolute advantage in gathering coconuts? Consider the maximum productivity of each individual when deciding on who has the absolute advantage.

b) Who has the comparative advantage in catching fish and who has the comparative advantage in gathering coconuts? Consider the opportunity costs each individual has in each of the tasks when determining the comparative advantage.

c) Plot each individual’s PPF. Put the quantity of fish on x-axis and quantity of coconuts on the y-axis. d) Plot the joint PPF of all three individuals. Remember to take into account the kink points.

Answer 1

Individual A can either gather 10 coconuts or catch 16 fish. Hence the opportunity cost of 1 coconut is 16/10 = 1.6 fish.

individual B can either gather 8 coconuts or catch 10 fish Hence the opportunity cost of 1 coconut is 10/8 = 1.25 fish.

Individual C can either gather 20 coconuts or catch 20 fish. Hence the opportunity cost of 1 coconut is 20/20 = 1 fish.

a)Individual C has the absolute advantage in catching fish as well as in gathering coconuts. She can catch the maximum fishes at 20 and gather coconuts at 20 pieces.  

b) Individual C has the comparative advantage in gathering coconuts as she has the lowest opportunity cost of coconutat 1 fish.  Individual A has the comparative advantage in catching fish.

c) Individual’s PPF are plotted below.

d) Plot the joint PPF of all three individuals.

There are two kinks, one at 10 fishes and one at 16 fishes.