Author Question: Tom is stranded on a deserted island where he can only consume coconuts and crabs. Two of his ... (Read 96 times)

folubunmi · **on:** Jun 29, 2018

Tom is stranded on a deserted island where he can only consume coconuts and crabs. Two of his indifference curves are in the figure above.

a) Would Tom prefer his consumption to be at point a or at point b? At point b or at point c? Explain your answers.
b) Between points a and b, what is Tom's marginal rate of substitution for a crab?

Question 2

Explain the difference between absolute advantage and comparative advantage.

What will be an ideal response?

todom5090 · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

a) Tom is indifferent between consuming at point a or at point b because both points are on the same indifference curve, I1. Tom would prefer to consume at point c rather than point b because point c is on a higher indifference curve, I2 versus I1.
b) Between points a and b, Tom's marginal rate of substitution for a crab is 2 coconuts per crab.

Answer to Question 2

A person has an absolute advantage in the production of a good if he or she is more productive at producing the good. A person has a comparative advantage in the production of a good if he or she can produce it at the lowest opportunity cost.