Answer the questions

Quiz 3 & 4 Name

Now Crusoe is joined by Friday on his island. Friday also produces bread and cloth. His production possibilities, along with Robinson's are shown in the table below.

ROBINSON F R I D A Y

bread in

loaves

opportunity cost of one

loaf of bread

cloth in

yards

opportunity cost of one

yard of cloth

bread in

loaves

opportunity cost of one

loaf of bread

cloth in

yards

opportunity cost of one

yard of cloth a 25 0 A 10 '• /• 0 b 22 3 B 9 3 c 18 6 ' . C 7 • i . 6 I d 13 9 C-- - D 4 10 e 7 12 E 0 15 ^ • : / , ? f 0 15

a) Graph the PPF's for both Robinson and Friday on tiie same graph. Put cloth on the horizontal axis and bread on the vertical axis.

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

c) Who has the absolute advantage at bread production? Explain.

d) Who has the comparative advantage at cloth production? Explain.

e) Who has the comparative advantage at bread production? Explain.

f) Does either have comparative advantage at both goods?

g) I f Robinson originally has bundle d and Friday bundle B before trading, what are the total quantities of each good produced? Graphically depict the point showing total combined output before specialization on your graph in part a. Label this point "g."

h) I f Robinson and Friday specialize, each w i l l produce only the good for which they have the comparative advantage. I f they do specialize, how much of each product w i l l be produced in total? Graphically depict the point showing total output after specialization on you graph in part a. Label this point "h."

i) When Robinson and Friday specialize they must trade to experience the benefit of their specialization and to be able to consume both goods. Compare your answers in parts g) and h) to detemiine what the overall gains are from specializing and trading.

***Note that you should be able to answer parts b) through e) both by looking at the graph and by looking at the numbers.