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1. Jimmy and Robert are on an island where they catch fish and pick coconuts. In one day Jimmy can catch 10 fish or pick 15 coconuts. Robert can catch 8 fish or pick 4 coconuts. Draw a production possibility frontier for Jimmy and Robert COMBINED. Label the slopes and intercepts. If they want to get 6 fish between them, how many coconuts can they get? Indicate this point on your graph. Who has a comparative advantage in Fish and Who has one in coconuts?

2. Draw a production possibility frontier for a fish/coconut economy with millions of people. Now imagine that climate change makes the coconut trees much MORE productive so that the number of coconuts each person can pick in a day increases by 30%. Show how this affects the PPF. Then show how this will affect the market for coconuts. (Your answer does not require any numbers.)

3. Show the effect of a subsidy to buyers of a good with a relatively elastic demand and inelastic supply. Show the effect on consumer and producer surplus and the deadweight loss (as well as the change in price and quantity). Who benefits more from this subsidy, buyers or sellers?

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