Steve and Craig have been shipwrecked on a deserted island in the South Pacific.

Question

Steve and Craig have been shipwrecked on a deserted island in the South Pacific. Their economic activity consists of either gathering pineapples or fishing. We know Steve can catch four fish in one hour or harvest two baskets of pineapples. In the same time Craig can reel in two fish or harvest two baskets of pineapples. Does Steve or Craig have an absolute advantage in producing fish? . Which of the two persons, Steve or Craig, has a comparative advantage in producing pineapples? . If both persons only caught fish, how many fish total could they collect in eight hours? If both persons only collected pineapples, how many baskets total could they collect in eight hours? What is the most number of fish they could . catch if both worked eight hours, assuming they want to collect exactly four baskets of pineapples per day?

Explanation / Answer

1. Absolute Advantage:

Absolute advantage is the ability of a country to produce a good or service at a lower per unit cost as compared to any other country that produces same good or service.

Steve has an absolute advantage in producing fishes.

2. Comparative Advantage:

A country has a comparative advantage in producing that good if the opportunity cost of producing that good is lower in that country as compared to another country.

Steve: 4 fishes = 2 pineapples

1 fish = 2/4 = 0.5 pineapples

1 pineapple = 4/2 = 2 fishes

Opportunity cost of 1 fish is 0.5 pineapples and 1 pineapple is 2 fishes.

Craig: 2 fishes = 2 pineapple

1 fish = 2/2 = 1 pineapple

1 pineapple = 2/2 = 1 fish

Opportunity cost of 1 fish is 1 pineapple and 1 pineapple is 1 fish.

Craig has a comparative advantage in the production of pineapples.

3. Steve can collect 4 x 8 hrs = 32 fishes in 8 hrs

Craig can collect 2 x 8 hrs = 16 fishes in 8 hrs

Total number of fishes collected = 32 + 16 = 48

4. Baskets of pineapple collected by Steve in 2 x 8 hrs = 16

Baskets of pineapple collected by Craig in 2 x 8 hrs = 16

Total baskets collected = 16 + 16 = 32

5. Steve can collect 4 basket in 2 hrs so left hours = 6 hrs in which Steve can catch 6 hrs x 4 = 24 fishes

Craig can collect 4 basket in 2 hrs so left hours = 6 hrs in which Craig can catch 6 hrs x 2 = 12 fishes

Most number of fishes = 24 fishes

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