Question

a)Fill out the below chart:

O.C= Opportunity cost

ROBINSON                                                          FRIDAY

b)Who has the absolute advantage in cloth production? Explain.

c) Who has the comparative advantage in bread production? Explain.

d) Who had the comparative advantage in cloth production? Explain.

e) Does either have the absolute advantage in both good?

g) If Robinson initially has bundle d and Friday had bundle b’ before trading, what are the total quantities of each good produced?

h) If they each specialize, how much of each good in total will be produced?

i) Is it possible that they could both be made better off by specializing and trading? If so, give an example of a mutually beneficial allocation.

Answer 1

A.

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B.

Friday has the absolute advantage in cloth production, because it uses resources more efficiently to produce cloths and produce more number of cloths.

C.

Robinson has comparative advantage in bread production due to relatively lower opportunity cost.

D.

Friday has comparative advantage in cloth production due to relatively lower opportunity cost in comparison to the cost taken up for Robinson.

E.

No

Robinson has in bread and Friday has in cloths.

PL. repost other unanswered questions for their proper answers!