Bud and Larry have been shipwrecked on a deserted island. Their economic activity consists of either gathering berries or fishing. We know that Bud can catch four fish in one hour or harvest two buckets of berries. In the same time Larry can catch two fish or harvest two buckets of berries.
a. Fill in the following table assuming that they each spend four hours a day fishing and four hours a day harvesting berries.
b. If Bud and Larry don’t trade with each other, who is better off? Why?
c. Assume that Larry and Bud operate on straight-line production possibilities curves. Fill in the following table:
d. If they traded, who has the comparative advantage in fish? In berries?
e. If Larry and Bud specialize in and trade the good in which they have a comparative advantage, how much of each good will be produced in an eight-hour day? What are the gains from trade?
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