Section+Exercise+3+solns_rev-1 - 2011 ,Berkeley Doraiswamy...

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Department of Economics               Spring  2011 University of California, Berkeley         Economics 1    Head GSI: Swetha  Doraiswamy Section Exercise 3 1) The countries of Figistan and Blah are small island countries in the South Pacific. Both  produce fruit and timber. Each island has a labor force of 1,200. The table below gives  production per month for each worker in each country: Productivity of one worker for one month Fruit (baskets) Timber (feet) Figistan 10 5 Blah 27 9 a. Which country has an absolute advantage in the production of fruit? Which country has an  absolute advantage in the production of timber? Blah has the absolute advantage in the production of both fruit and timber. b. Which country has a comparative advantage in the production of fruit? Of timber? Blah has the comparative advantage for fruit. For Blah, the opportunity cost of one basket  of fruit is 1/3 board feet of timber (=9 board feet of timber/ 27 baskets of fruit). For  Figistan, the opportunity cost of one basket of fruit is 1/2 board feet of timber (=5 board  feet of timber/ 10 baskets of fruit). Figistan has the comparative advantage for timber. For Figistan, the opportunity cost of  one board feet of timber is 2 baskets of fruit (=10 baskets of fruit/ 5 board feet of timber).  For Blah, the opportunity cost of one board feet of timber is 3 baskets of fruit (= 27  baskets of fruit/ 9 board feet of timber). c.
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This note was uploaded on 04/26/2011 for the course ECON 1 taught by Professor Martholney during the Fall '08 term at Berkeley.

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Section+Exercise+3+solns_rev-1 - 2011 ,Berkeley Doraiswamy...

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