ECON 110 Study Guide - Final Guide: Factor Endowment, Autarky, Absolute Advantage
6 Dec 2017
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Crusoe and friday are each alone at opposite ends of an island. Crusoe can produce either 10 coconuts or 5 fish a day (or any linear combination) Friday can produce either 5 coconuts or 10 fish a day (or any linear combination) In autarky ((cid:449)ith (cid:374)o trade), ea(cid:272)h perso(cid:374)"s ppb is also his co(cid:374)su(cid:373)ptio(cid:374) possi(cid:271)ilities bou(cid:374)dary (cpb) Suppose in autarky, crusoe chooses 2 fish and 6 coconuts, friday chooses 6 fish and 2 coconuts: total outputs in autarky is 8 fish and 8 coconuts. Voluntary trade brings the 2 into the same economy. The gains from trade allow the two to reach the economy-wide ppb. Suppose crusoe transfers 1/5 of his time from fish to coconuts and friday transfers 1/5 of his time from coconut to fish. This change moves them closer to the economy-wide ppb and the additional output is a measure of the gains from trade.
