Applied Microeconomics Exercise: Robinson

Crusoe’s Economic Choices

Scenario
Robinson Crusoe is stranded on a deserted island, and he has limited time and
resources to allocate between two activities: fishing and gathering coconuts.
Crusoe needs both food and shelter, and each activity requires different amounts
of time.

Questions
1. Scarcity and Choices:
(a) Identify three scarce resources on the island.
(b) List three needs and wants of Robinson Crusoe.
(c) Explain how scarcity forces Crusoe to make choices.

2. Opportunity Cost:
(a) If Crusoe spends all his time fishing, what is the opportunity cost in
terms of coconuts?
(b) Draw a simple production possibilities frontier (PPF) graph showing
the trade-off between fishing and gathering coconuts.

3. Production and Consumption:

(a) If Crusoe is on the PPF, what does this indicate about his production
and consumption?
(b) If Crusoe decides to spend all his time gathering coconuts, what
happens to his fishing output?

4. Efficiency and Inefficiency:

(a) Identify a point on the PPF that represents efficiency.

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 (b) Explain why a point inside the PPF is inefficient.

5. Trade and Comparative Advantage:

(a) Introduce a new character, Friday, who also washes ashore.
(b) Crusoe can catch 5 fish or gather 20 coconuts per day, while Fri-
day can catch 8 fish or gather 15 coconuts per day. Determine the
comparative advantage for each task.
(c) Based on comparative advantage, suggest a trade that benefits both
Crusoe and Friday.

6. Mutual Gains from Trade:

(a) Explain how trade between Crusoe and Friday can lead to mutual
gains.
(b) Calculate the new combined output of fish and coconuts after trade.

7. Changes in Resources:
(a) Imagine that a shipwreck washes ashore, providing additional re-
sources. How does this affect the PPF?

8. Reflection and Analysis:

(a) Reflect on how scarcity, opportunity cost, and trade played a role in
Crusoe’s decision-making.
(b) Relate the scenario to real-world economic situations involving re-
source allocation and trade.