Name Key

1.      Gilligan and Robinson are stranded on a desert island.  To feed themselves each day they can either catch fish or pick fruit as specified in the table below. 
a.  Gilligan's opportunity cost of catching/producing a fish is  foregone fruit. 2
b.  Gilligan's opportunity cost of harvesting one more fruit is  foregone fish. 1/2 or .5
c.  Robinson's opportunity cost of catching/producing a fish is  foregone fruit. 2/3 or .6
d.  Robinson's opportunity cost of harvesting one more fruit is foregone fish. 3/2 or 1.5
e.       comparative advantage in fishing          Gilligan        Robinson
f.      comparative advantage in fruit picking   Gilligan        Robinson
g.       absolute advantage in fishing                Gilligan        Robinson
h.      Absolute advantage in fruit picking        Gilligan        Robinson

2.      Inlandia and Outlandia can both produce cars or wheat.  The opportunity cost of a car in Inlandia is 40 bushels of wheat.  The opportunity cost of a car in Outlandia is 200 bushels of wheat.  The most wheat Inlandia can possibly produce is 10,000 bushels and the most wheat Outlandia can possibly produce is 2 million.

a.  What is the greatest number of cars that can be produced in Inlandia? 250

b.  What is the greatest number of cars that can be produced in Outlandia? 10,000

c.       Does the Low-Hanging-Fruit Principle apply in Inlandia or Outlandia?  That is, does each additional bushel of wheat require that the nation forego increasing numbers of cars?  Yes     No

d.       If the two countries sign a trade agreement to specialize according to their comparative advantage, what should each country produce?
Inlandia         Wheat       Cars
Outlandia       Wheat       Cars

e.      If these are the only two countries in the world that are open to trade, what are the maximum and minimum prices that can prevail on the world market for a bushel of wheat (in terms of cars)? (1/200, 1/40) or (.005, .025)

3. It is possible for a nation to have an absolute advantage in the production of ALL goods.  True  False

4. It is possible for a nation to have a comparative advantage in all goods. True False