Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Exchange in an Island Economy. Robin and Terry are stranded on a deserted island and consume two products, coconuts and fish. In a day,
Exchange in an Island Economy. Robin and Terry are stranded on a deserted island and consume two products, coconuts and fish. In a day, Robin can catch 2 fish or gather 8 coconuts, and Terry can catch 1 fish or gather 1 coconut. Robin Output per day Fish 2 Coconuts 8 Terry Fish 1 Coconuts 1 Terry has a comparative advantage fishing, and Robin has a comparative advantage gathering coconuts. Suppose that each person is initially self-sufficient. In a six-day week, Robin produces and consumes 32 coconuts and 4 fish, and Terry produces and consumes 4 coconuts and 2 fish. Now suppose Robin and Terry engage in specialization and exchange, trading 2 coconuts for 1 fish. If Robin and Terry consume the same number of fish as in the self-sufficient outcome, then specialization and exchange allow Robin to consume additional coconuts (enter your response as an integer)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started