Scenario 1 Suppose you and a friend are stranded on an island and must gather fi

Question

Scenario 1 Suppose you and a friend are stranded on an island and must gather firewood and catch fish to survive. Through experience, you know that if each of you spends an entire day on either activity, the result is given in the following table: Fish Firewood (bundles) You Your friend 6. Refer to Scenario 1. What is the opportunity cost of 1 fish for you? a. 2 bundles of firewood. b. 1/2 of bundle of firewood. c. 1 bundle of firewood. d. 4/3 bundles of firewood. 7. Refer to Scenario 1. Which of the following is true for you and your friend? a. You have an absolute advantage in both fish and firewood. b. You have an absolute advantage in fish and your friend has an absolute advantage in c. Your friend has an absolute advantage in fish and you have an absolute advantage in d. Your friend has an absolute advantage in both fish and firewood. firewood firewood. 8. Refer to Scenario 1. Which of the following is true for you and your friend? a. You have a comparative advantage in both fish and firewood. b. You have a comparative advantage in fish and your friend has a comparative advantage in firewood. c. Your friend has a comparative advantage in fish and you have a comparative advantage in firewood. d. Your friend has a comparative advantage in both fish and firewood. 9. If the elasticity of supply is zero, what do we know? a. Supply is very elastic. b. The supply curve is horizontal. c. The quantity supplied is the same regardless of price. d. Suppliers are very sensitive to changes in price.

Explanation / Answer

ANSWER:

6) Opportunity cost of 1 fish = 3 / 6 firewood bundles = 1 / 2 firewood bundles that is option b.

7) option c is right because in fish your friend has an absolute advantage(8 > 6) and you has an abssolute advantage on firewood bundles(3 > 2).

8) option c is right because in fish your friend has a comparitive advantage(2 / 8 = 1 / 4 < 3 / 6 = 1 / 2 ) and you has a comparitive advantage on firewood bundles ( 6 / 3 = 2 < 8 / 2 = 4)

9) option c is right because zero means no change in quantity supplied with increase or decrease in price.

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