FRQ Week 1

Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly

labeled diagram must have all axes and curves clearly labeled and must show directional changes. If

the question prompts you to "Calculate," you must show how you arrived at your final answer.

Zeetopia and Freshland are two small tropical islands that use the same amounts of resources to

produce mangoes and coconuts as shown in the table below.

Coconuts (in tons) Mangoes (in tons)

Zeetopia 50 60

Freshland 50 30

(a) Which island has an absolute advantage in producing coconuts? Explain.

Since both Zeetopia and Freshland produce the same amount of coconuts, neither of them has the absolute advantage in producing coconuts.

(b) Which island has a comparative advantage in producing coconuts? Explain.

Freeland has a comparative advantage in the production of coconuts because

Zeetopia's opportunity cost for 1 coconut is 1.2 mangoes while Freshland's

the opportunity cost for 1 coconut is 0.6 mangoes.

(c) Assume Zeetopia and Freshland decide to specialize according to their comparative advantages

and 1 ton of coconuts is exchanged for 1 ton of mangoes. Are specialization and trade under these

terms beneficial to both Zeetopia and Freshland? Explain.

(d) Assume the two islands experience constant opportunity costs in the production of the two

products. Draw a correctly labeled graph illustrating Zeetopia's and Freshland's production

possibilities, showing coconuts on the horizontal axis and mangoes on the vertical axis. Plot the

numerical values from the table above on your graph.

(e) On your graph in part (d), show a combination of coconuts and mangoes, labeled as point X that

is unattainable for Freshland but feasible and inefficient for Zeetopia.