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Alpha and Beta, two tiny islands off the east coast of Tricoli, produce pearls and pineapples. The following production possibilities schedules describe their potential output in tons per year.
|
Alpha |
 Beta |
|
Pearls Pineapples |
 Pearls Pineapples |
|
0 30 |
 0 20 |
|
2 25 |
 10 16 |
|
4 20 |
 20 12 |
|
6 15 |
 30 8 |
|
8 10 |
 40 4 |
|
10 5 |
 45 2 |
|
12 0 |
 50 0 |
(a) Graph the production possibilities confronting each island.
(b) What is the opportunity cost of pineapples on each island (before trade)?
(c) Which island has a comparative advantage in pearl production?
(d ) Graph the consumption possibilities of each island with free trade.
(e) If Beta produced only pearls,
(i) How many could it produce?
(ii) How many pearls would it have to export to get 20 pineapples in return?
(iii) What is the net gain to Beta in this case?
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