Person A can produce 1 banana per hour or 1 fish per hour. Person B can produce 2 bananas per hour or 0.5 fish per hour. The each have 10 hours of time per day. Time is their only resource. (Drawing out their Production Possibility Curves might help).
a. Suppose that each person decides to split their time evenly across banana and fish production. How many bananas and fish do they each consume?
b. Which person has a comparative advantage in Bananas? Which person has a comparative advantage in fish? Why (show your work)?
c. If they each completely specialize in their comparative advantage good how many bananas and fish will be produced?
d. Now suppose that they decide to trade 4 fish for 8 bananas. How many bananas and fish do they each consume now?
e. Using your answers above how would you argue for free trade?