Answer to Question #289373 in Macroeconomics for moh

Question

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

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

(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.

Answer 1

The time spent on 1 ton of manufactured products is given

(a) Since the time spent on the same number of coconuts (1 ton) is less in Zeetopia, it has an absolute advantage in coconuts. Similarly, Freshland has an absolute advantage in mango.

(b) To determine the comparative advantage, let's calculate how many goods each can produce in 1 hour.

Next, we will calculate in tabular form the opportunity costs of each product in each

The table shows that Zeetopia has the lowest opportunity cost of coconut, and Freshland has the lowest opportunity cost in mango. Consequently, Zeetopia has a comparative advantage in coconuts, and Freshland in mangoes.

с)Of course, the exchange is beneficial, since the costs of producing coconuts in Freshland are expensive, and mangoes are expensive to produce in Zeetopia

d), e)