Q5(5): Kutaro is a small island nation in the South Pacific. The inhabitants of Kutaro work to produce one of two goods: honey and clams. Recently Kutaro has begun to trade with other countries, and the Kutaran economy has adjusted to the international prices for honey and clams and is in equilibrium. The current international price for honey is $2 per jar, and the international price for clams is $16 per pound. a) If the Kutarans decide to give up producing 100 pounds of clams, how many more jars of honey could they produce? b) Now suppose that the Kutarans want to increase production of clams by 50 pounds. How many jars of honey must they give up to make this possible?

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Comparative Advantage and Absolute Advantage Analysis

The theory of absolute advantage was given by Adam Smith in the year 1776.