Economic Models: Trade-offs and Trade
Two important industries on the island of Bermuda are fishing and tourism.
According to data from the World Resources Institute and the Bermuda Department
of Statistics, in the year 2000 the 307 registered fishermen in Bermuda caught 286
metric tons of marine fish. And the 3,409 people employed by hotels produced
538,000 hotel stays (measured by the number of visitor arrivals). Suppose that this
production point is efficient in production. Assume also that the opportunity cost of
one additional metric ton of fish is 2,000 hotel stays and that this opportunity cost
is constant (the opportunity cost does not change).
If all 307 registered fishermen were to be employed by hotels (in addition to the
3,409 people already working in hotels), how many hotel stays could Bermuda
If all 3,409 hotel employees were to become fishermen (in addition to the 307
fishermen already working in the fishing industry), how many metric tons of fish
could Bermuda produce?
Draw a production possibility frontier for Bermuda, with fish on the horizontal
axis and hotel stays on the vertical axis, and label Bermuda’s actual production
point for the year 2000.
Forgoing the production of 1 metric ton of fish allows Bermuda to produce 2,000
additional hotel stays. Therefore, forgoing the production of 286 metric tons of
fish allows Bermuda to produce 2,000
572,000 additional hotel stays. If
all fishermen worked in the hotel industry, Bermuda could produce
1,110,000 hotel stays.
Forgoing the production of 2,000 hotel stays allows Bermuda to produce 1 addition-
al metric ton of fish, so giving up 538,000 hotel stays allows Bermuda to produce
269 additional metric tons of fish. If all hotel employees worked in
the fishing industry, Bermuda could produce 286
555 metric tons of fish.
The accompanying diagram shows the production possibility frontier for Bermuda.
Note that it is a straight line because the opportunity cost is constant. Point
Bermuda’s actual production point.
Quantity of fish (metric tons)