Define comparative advatage

Reference no: EM131443705

Question: Bud and Larry have been shipwrecked on a deserted island. Their economic activity consists of either gathering berries or fishing. We know that Bud can catch four fish in one hour or harvest two buckets of berries. In the same time Larry can catch two fish or harvest two buckets of berries.

a. Fill in the following table assuming that they each spend four hours a day fishing and four hours a day harvesting berries.

b. If Bud and Larry don't trade with each other, who is better off? Why?

c. Assume that Larry and Bud operate on straight-line production possibilities curves. Fill in the following table:

d. If they traded, who has the comparative advantage in fish? In berries?

e. If Larry and Bud specialize in and trade the good in which they have a comparative advantage, how much of each good will be produced in an eight-hour day? What are the gains from trade?

Reference no: EM131443705

Questions Cloud

What is an employment in the macroeconomy : How would each of the following likely affect long-run and/or short-run aggregate supply and employment in the macroeconomy? a. an increase in the productivity of the labor force due to increased education b. the coldest year in a century leads to fr..

Summary of the key finding of the article : Summary of the key finding of the article.Participants in the study (how many, what age/gender, where they came from or how were they selected).Describe the independent variable (what groups were compared, or what was done to the participants).Descri..

Problem regarding the autonomous exports : Assume that the marginal propensity to expend is 0.50 and therefore the multiplier is 2. According to the multiplier model, an increase in autonomous exports of 100 would raise the equilibrium level of income by 200. Explain how the multiplier pro..

Positionon of the las curve : Unfortunately you can't give him solid policy prescriptions based on that model because you do not know the positionon of the LAS curve. Explain why not knowing this creates a problem.

Define comparative advatage : Bud and Larry have been shipwrecked on a deserted island. Their economic activity consists of either gathering berries or fishing. We know that Bud can catch four fish in one hour or harvest two buckets of berries. In the same time Larry can catch..

Simple supply and demand model apply to case : Both events have had significant impacts on world oil prices. How would the simple supply and demand model apply to this case? Understand that oil prices have been both high and low over the last 10 years. Explain how these events have effected ..

How much profit does the manufacturer make : How much profit does the manufacturer make? How much profit does the retailer make? How much profit does the retailer make?

In the liquidity demand for money function : In the liquidity demand for money function, what does Dt represent? What determines the Dt demand for money? What does Da represent and what determines it? In words, how is the equilibrium rate of interest determined?

Which country has a comparative advantage : 1) Which country has a comparative advantage at producing Good X? How can you tell? 2) Which country has a comparative advantage at producing Good Y?

User Account

All Pages