Suppose there are two small island nations in the South Pacific which both produce only fish and bananas. If the people on Island One devote all their time to fishing, they can catch ten kilograms of fish per day. If they devote all their time to picking bananas they can pick ten kilograms per day. On Island Two the people can catch only eight kilograms of fish from a day's fishing, but they can pick 12 kilograms of bananas. The opportunity cost of one fish for Island One is bananas, and the people on Island One should specialise in _________ .

Question

Quizplus · Accepted Answer

The opportunity cost of one fish for Island One is 1 kilogram of bananas (since they can produce 10 kg of either per day). Island One should specialize in fish because they have a comparative advantage in fish production compared to Island Two.

Suppose There Are Two Small Island Nations in the South