Exchange in an Island Economy. Robin and Terry are stranded on a deserted island and consume two 1 answer below »

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.

a. Use these numbers to prepare a table like Table 3.1 on page 50 . Which person has a comparative advantage in fishing? Which person has a comparative advantage in gathering coconuts?

b. 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 3 coconuts and 3 fish. Show that specialization and exchange (at a rate of 3 coconuts per fish) allows Robin to consume more coconuts and the same number of fish and allows Terry to consume more coconuts and the same number of fish. Illustrate your answer with a graph like Figure 3.1 on page 51.

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