John and Terry are both stranded on an island and looking for food. There are Boar and Mangos on the island. In a single day John can find 16 mangos or kill 6 boar. Likewise, in a single day Terry can find 3 mangos or kill 4 boar. Assume both John and Terry have constant opportunity costs in the production of both goods.
1. Who has the absolute advantage in killing boar? ________
2. Who has the absolute advantage in finding mangos? ______
3. What is the opportunity cost for John to find a mango? _______
4. What is the opportunity cost for Terry to kill TWO boar? _______
5. Who has the comparative advantage in killing boar? ________
6. Who has the comparative advantage in finding mangos? _______
Suppose now that John and Terry decide to trade Boar for Mangos between each other.
7. Which of the individuals (John or Terry) should specialize in hunting boar and trading it for mangos? ______
8. Is 1 Mango for 2 Boar a trade that both will agree to? _________
9. Is 1 Mango for 1 Boar a trade that both will agree to? ________
10. The supply and demand for the cookie market are given by the following equations where Qd is the quantity demanded, Qs is the quantity supplied and P is the price in the cookie market:
Qd = 600 – 2P
= Qs
a. Find the equilibrium price and quantity in this market. ___________________
Suppose now that a considerable group of people replace their consumption of cookies with spinach consumption. At the same time the price of one of the inputs used in the production of cookies decreases.
b. What happens to the equilibrium price and quantity due to these changes?