Explain how comparative advantage allows less efficient producers to compete with more efficient producers
The following table represents the relationship between two people stranded on an island.
| |
Pat
|
Mike
|
|
Coconuts per day
|
40
|
20
|
|
Fish per day
|
35
|
28
|
According to the table, Pat can collect 40 coconuts per day to Mike's 20, and Pat can catch 35 fish per day to Mike's 28. Using the principles of comparative advantage, answer the following questions:
- What is the opportunity cost for fish for both Pat and Mike?
- What is the opportunity cost for coconuts for both Pat and Mike?
- Comparing these opportunity costs, who should specialize in catching fish, and who should specialize in collecting coconuts?
- What is the increase in consumption for both Pat and Mike if they specialize in the correct product?