Answer to Question #54693 in Microeconomics for ghalia

Question

You find yourself in a lonely desert. The only 2 things you can produce are either dates or water. In a day you can either gather 100 dates or collect 50 liters of water. And you choose to spend 4 days a week gathering dates and 3 days a week collecting water.
Now imagine in the neighbor oasis is Mohammed and he can produce in a day either 150 dates or 60 liters of water. And he chooses to spend 4 days a week gathering dates and 3 days a week collecting water.
Who has an absolute advantage in dates and water production and who has a comparative advantage in dates and water production?
How many dates and liters of water are you and Mohammed producing per week before trade?
How many dates and liters of water are you and Mohammed producing after you decided to trade with each other?
Think of an exchange that would make both parties better off than before they decided to trade with each other.

Answer 1

In a day you can either gather 100 dates or collect 50 liters of water. And you choose to spend 4 days a week gathering dates and 3 days a week collecting water.
Mohammed can produce in a day either 150 dates or 60 liters of water. And he chooses to spend 4 days a week gathering dates and 3 days a week collecting water.
1) Mohammed has an absolute advantage in dates and water production and you have a comparative advantage in water production, because your opportunity cost of producing water is higher (0.5 liters of water per one date against 0.4 liters) and Mohammed has a comparative advantage in dates production.
2) You are producing 400 dates and 150 liters of water and Mohammed is producing 600 dates and 180 liters of water per week before trade.
3) You are producing 350 liters of water and Mohammed is producing 1050 dates per week after you decide to trade.
Now they both produce more dates and water, than before, that's why that would make both parties better off than before they decided to trade with each other.