Question
Imagine an island with many people on it, each of whom can catch somenumber of fish or pick some number of coconuts (each person's numbers
Imagine an island with many people on it, each of whom can catch somenumber of fish or pick some number of coconuts (each person's numbers being different from the rest).Now imagine that they discover a new invention--the ladder!The ladder allows every person to pick twice as many coconuts as before.
a. What happens to the marginal cost of fish for each person and what happens to the marginal cost of coconuts?
b. Sketch the PPF and show how it shifts with the new invention.(There are no numbers in this problem, but I want it to have the proper shape.Make sure to clearly indicate which is the old one and which is the new one.)
c. Assume that on the island is a market where people trade fish for coconuts?What do you think will happen to the price of fish and the price of coconuts after this new invention?Show this on a graph of the coconut market and also on another graph of the fish market.(Hint:Who buys fish on this island?)
Note: There is no money on the island.The price of fish is measured in coconuts and the price of coconuts is measured in fish.This means that in some sense there is only one price.And in fact, there is only one market.But we can look at it from two different angles (fish market or coconut market)!
d. Does this new invention make coconut producers better off or worse off?What about fish producers?
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