Two countries, Haiti and the Dominican Republic, produce fruits and timber. Each
ID: 1193659 • Letter: T
Question
Two countries, Haiti and the Dominican Republic, produce fruits and timber. Each island has a labor force of 1200 and the monthly productivity of each worker is as follow
Basket of fruit Board feet of timber
Haiti 10 5
Dominican Republic 30 10
a. Which county has an absolute advantage in the production of fruit? Timber?
b. Which country has a comparative advantage in the production of fruit? Timber?
c. Sketch the production possibility frontier (PPF) of both countries
d. Both countries want to produce an equal amount of baskets of fruit and feet of timber. How should they allocate their workers to the two sectors?
e. How can free trade move both countries beyond their respective PPF
Explanation / Answer
a) Haiti has an absolute advantage in the production of fruit. Since 10<30 (see basket of fruit column only). Similarly, Haiti has an absolute advantage in the production of Timber. Since , 5<10 ( see board feet of timber column only).
b) 1 worker's monthly production is 10 units of fruit and 5 units of timber in Haiti.
Similarly, 1 worker's monthly production is 30 units of fruit and 10 units of timber in Haiti.
Clearly, we see to produce 1 unit of fruit Haiti gives up 2 unit of timber
Similarly, we see to produce 1 unit of fruit Dominican Republic gives up 3 units of timber.
Hence, we can say Haiti has a comparative advantage in the production of fruit since it gives up less timber to produce fruit.
So, Haiti should specialize in producing fruit and Dominican Republic should specialize in producing timber.
c) See image attached
d) Same amout of fruit and timber.
Total labour force = 1200
In Haiti :-
Fruit = x and Timber =y
y=x/2
similarly, In DR
y = x/3
For Haiti :-
x+ y =1200
=> x+ x/2 = 1200
=> 3x = 2400
=> x =800 , y = 400
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