A Tale of Two Tribes

On an island, there lived

two isolated tribes,

Portigia

Engia
 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.
 In one day,
the workers of Engia could collect

120 units of fish

OR

80 units of wood
 In one day,
the workers of Portigia could collect

160 units of fish

OR
200 units of wood
 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.

Chief of Engia
Chief of Portigia
One day, an adventurer called David arrived.
He discovered these tribes.
 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 Portigia Chief of Engia

Then he urged the chiefs to discuss this issue.

David

Chief of Portigia Chief of Engia

 Based on my
knowledge in
economics,
specialization would
increase output. Trade
would improve living
standards. Why don't
you do that?

David
I don't think the P
ortigians will coo
perate with our tri
be because they ar
e more superior a
nd productive. H
ow will they do th
at without any ben
efit?

Chief of Engia
 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
 Chief of Engia
???
?

Let me tell you

????
my plan.

David

Chief of Portigia
 You,
Don't the chief
worry, of
Portigia
Engia, should your
will provide ask all youwit
tribe
r workers
h wood iftoyou
catch fish
give anto
fish
d collectthem.
no wood..

No, we will
die of cold if we
don't have wood
to burn at night.

Chief of Engia
David
 Since you are more productive in both tasks, I don't advis
e you to do only one task. I suggest that you should send 15
workers to collect wood and 5 workers to catch fish. Also, do
n't worry about the fish; you can get them from Engia. I guar
antee that both of you can get more fish and wood than befor
e if you follow my suggestion.

Chief of Portigia
David
 After the conversation, both chiefs still
hesitated to follow David's plan.

Chief of Engia
Chief of Portigia
Can David’s plan raise the outputs
of wood and fish for the two tribes
in total?
 Activity 1
1. Which tribe is better at collecting wood: Engia or
Portigia?
Portigia

2. Which tribe is better at catching fish: Engia or Por

tigia?
Portigia
 Activity 1
3. Before the arrival of David
Daily Output / goods available
The initial situation
Wood   Fish
(Units) (Units)

Engia
40 and 60
Portigia
100 80
Total and
140 140
 Activity 1
4. After David’s plan is adopted
Daily Output
David’s plan
Wood   Fish
(Units) (Units)

Engia
0 and 120
Portigia
150 40
Total 150 and
160
 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.
 Activity 1
6. After trade
Goods Available
After Trade
Wood   Fish
(Units) (Units)

Engia 45 and 75
Portigia
105 85
Total 150 and
160
 Activity 1
7. The gains from trade
Gains from trade

Wood   Fish
(units) (units)

Engia 5 and 15
Portigia
5 5
Total 10 and 20
Can you explain why they can
produce more output with the
same amount of resources?
 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.
Portigia has the absolute advantage both
in collecting wood and catching fish. H
owever, she has the comparative advant
age only in collecting wood, whereas E
ngia has the comparative advantage in c
atching fish.
 Opportunity cost of wood
(a) What is the opportunity cost of producing 1 unit of w
ood in terms of fish in Engia?
1.5 units of fish
(b) What is the opportunity cost of producing 1 unit of w
ood in terms of fish in Portigia?
0.8 units of fish
(c) Which tribe has the comparative advantage in collecti
ng wood?
Portigia has the comparative advantage in collecting
wood because she gives up less fish than Engia.
 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 b
ecause she gives up less wood than Portigia does.
 Conclusion
Although Portigia has the absolute advan
tage in both activities, she has the compa
rative advantage in collecting wood only.
When Engia and Portigia specialize in th
e activity which each has the comparativ
e advantage and trade, both are better off.