Gordon Rule Macroeconomics Assignment: Four Countries

You are the leader of one of four small countries, which will be assigned to you. The four countries in question are very close to each other, and there is a sandbar which connects all of them so when the tide is low you can easily walk from one country to another. This makes trading and communicating convenient and hassle free.

Despite the proximity of the islands and the similarity in climate between the islands, the four islands have distinct types of soil which are conducive to different fruits. The people of your island and the people of the other islands enjoy a combination of fruits and having good relationships with the other islands as they have friends and family in those islands and like going to a different island for weekends or holidays. One effective way to maintain good diplomatic relationships is through trade.

As such, your people want you to make sure that you trade with the other islands and provide a decent combination of fruits. However, you cannot trade such that it would make you worse off than if you had not engaged in the trade. In order to grow fruits, you need to give up the specified number of bags of fertilizer. Each country is endowed with 200 bags of fertilizer this year. You can only trade fruits, not fertilizer.

Write three pages and address all of the following points. Your writing must meet Gordon Rule standards.

• Name your country. Decide a name for the group of countries and record it, as well as the names of the other island leaders.

• Determine trade terms with each of the other island leaders and describe those terms. Both parties must accept the trade terms for them to take effect.

• Make at least one trade with each other island. You can do more than just one trade if you want. Your trade cannot make you worse off that before that trade.

• Describe which combination of fruits you would produce with these trade terms. Explain what led you to this kind of production strategy.

• Is there a country within the four countries that has an absolute advantage? If so, did they engage in trade, and were they better off because of it?

• Record all the trade terms, name of your partners, their country names, and all trades committed. Each team must have matching results or points will be taken off.

• Compare your final combination of fruits with how many fruits you would have had if you decided to not trade.

• Calculate how much fertilizer you would have needed to produce the fruits you have after trading, if you were to grow those fruits on your island.