Suppose that you are on a desert island and possess exactly 20 coconuts. Your ne

Question

Suppose that you are on a desert island and possess exactly 20 coconuts. Your neighbor, Friday, is a fisherman, and he is willing to trade 2 fish for every 1 coconut that you are willing to give him. Another neighbor, Kwame, is also a fisherman, and he is willing to trade 3 fish for every 1 coconut. a. On the diagram below, draw budget lines for trading with Friday and for trading with Kwame Instructions: Use the tools provided 'Friday' and Kwame' to draw two separate budget lines representing Friday's willingness to trade and Kwame's willingness to trade. 30 Tools 25 iday 20 15 10 10 20 30 40 50 60 70 Fish

Explanation / Answer

Think of Price of Fish in terms of fish = 1F and Price of Coconut in terms of Fish =2F

F= 2*(20-C)

F +2C = 40

Budget constraint from trading with Friday:

Price of Fish in terms of fish = 1F and Price of Coconut in terms of Fish =3F

F= 3*(20-C)

F +3C = 60

Figure you have done above is correct.

b) Slope of BC from Friday =- Pf/Pc = -1/2

c) Slope of BC from Kwame:= -Pf/Pc = -1/3

d) BC from Kwame features a larger set of attainable combinations of coconut and Fish

e) From Kwame because he offers better terms. With trading less coconuts more fish can be obtained.

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