A Tale of Two Tribes

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A Tale of Two Tribes
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On an island, there lived two isolated tribes,
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In order to survive, they needed to catch fish
from the sea and collect wood from the forest.
There were 20 workers in each tribe.
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In one day, the workers of Engia could collect
OR
5
In one day, the workers of Portigia could collect
OR
6
Initially, the chief of each tribe assigned 10
workers to collect wood and the other 10 to catch
fish. All of them were satisfied with this
arrangement.
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One day, an adventurer called David arrived. He
discovered these tribes.
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He was surprised to find that their production
arrangement was so inefficient.
Based on my training in economics, I am confident
that I can improve your living standard by
changing the production arrangement.
David
Chief of Engia
Chief of Portigia
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Then he urged the chiefs to discuss this issue.
David
Chief of Engia
Chief of Portigia
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Based on my knowledge in economics,
specialization would increase output. Trade
would improve living standards. Why don't you do
that?
David
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I don't think the Portigians will cooperate with
our tribe because they are more superior and
productive. How will they do that without any
benefit?
Chief of Engia
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We can collect more wood and catch more fish than
they can with the same number of workers. We may
suffer if we trade with them. I can't see any
reason for cooperation.
Chief of Portigia
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Chief of Engia
????
Let me tell you my plan.
????
David
Chief of Portigia
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You, the chief of Engia, should ask all your
workers to catch fish and collect no wood..
Don't worry, Portigia will provide your tribe
with wood if you give fish to them.
No, we will die of cold if we don't have
wood to burn at night.
Chief of Engia
David
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Since you are more productive in both
tasks, I don't advise you to do only one task. I
suggest that you should send 15 workers to
collect wood and 5 workers to catch fish. Also,
don't worry about the fish you can get them from
Engia. I guarantee that both of you can get more
fish and wood than before if you follow my
suggestion.
Chief of Portigia
David
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After the conversation, both chiefs still
hesitated to follow David's plan.
Chief of Engia
Chief of Portigia
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Can Davids plan raise the outputs of wood and
fish for the two tribes in total?
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Activity 1

• 1. Which tribe is better at collecting wood
  Engia or Portigia?

2. Which tribe is better at catching fish Engia
or Portigia?
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Activity 1

• 3. Before the arrival of David

40
60
80
100
140
140
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Activity 1

• 4. After Davids plan is adopted

0
120
150
40
150
160
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Activity 1

• 5. After they have adopted David's plan, do they
  have more output as a whole? How much additional
  wood can they collect? How much additional fish
  they can catch?

As a whole, they can produce more. With the same
amount of resources, they can collect 10 more
units of wood and catch 20 more units of fish.
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Activity 1

• 6. After trade

45
75
105
85
150
160
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Activity 1

• 7. The gains from trade

5
15
5
5
10
20
Total
and
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Can you explain why they can produce more output
with the same amount of resources?
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Definitions

• Absolute advantage the ability to produce more
  units of a good or service than some other
  producers using the same quantity of resources.
• Comparative advantage the ability to produce a
  good or service at a lower opportunity cost than
  another producer.

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Portigia has the absolute advantage both in
collecting wood and catching fish. However, she
has the comparative advantage only in collecting
wood, whereas Engia has the comparative advantage
in catching fish.
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Opportunity cost of wood

• (a) What is the opportunity cost of producing 1
  unit of wood in terms of fish in Engia?
• 1.5 units of fish
• (b) What is the opportunity cost of producing 1
  unit of wood in terms of fish in Portigia?
• 0.8 units of fish
• (c) Which tribe has the comparative advantage in
  collecting wood?
• Portigia has the comparative advantage in
  collecting wood because she gives up less fish
  than Engia.

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Opportunity cost of fish

• (d) What is the opportunity cost of producing 1
  unit of fish in terms of wood in Engia?
• 0.67 units of wood
• (e) What is the opportunity cost of producing 1
  unit of fish in terms of wood in Portigia?
• 1.25 units of wood
• (f) Which tribe has the comparative advantage in
  catching fish?
• Engia has the comparative advantage in catching
  fish because she gives up less wood than
  Portigia.

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Conclusion

• Although Portigia has the absolute advantage in
  both activities, she has the comparative
  advantage in collecting wood only. When Engia
  and Portigia specialize in the activity which
  each has the comparative advantage and trade,
  both are better off.