Question

5. Let’s figure out GDP for Robinson Crusoe.

A. Initially, he is stuck on an island without the wisdom and local knowledge of Friday. Because Crusoe is a proper Englishman, he wants to keep his accounts. This year, he catches and eats 2,000 fish valued at one British pound (£) each, grows and eats 4,000 coconuts valued at 0.5 British pounds each, and makes two huts (housing) valued at 200 pounds each.

If government purchases are zero and there is no trade, what is C for Crusoe? What is I? What is Y? (We are going to start using those letters as if they mean something: See question 12 in the previous section.)

B. One year, he learns of a tribe on a nearby island who are willing to trade with him: If he gives fish, they give clams. He produces just as much as before, but he trades 500 of the 2,000 fish and receives 10,000 clams valued at 5 clams per British pound. What is the British pound value of the exported fish? Of the imported clams? What are C, I, and Xnow? What is GDP now?

C. The following year, Crusoe produces the same as in every other year, but a tribe on the other side of the island steals his two huts after he makes them, and gives him nothing in return. So he exports, but does not import at all. What are C, I, X, and Y now?

D. In Crusoe’s final year on the island, he produces the same as in every other year (he’s a reliable worker), but a new shipwreck washes up on his island containing a clock worth £3, a new shirt worth £2, and a copy of Milton’s Paradise Lost and Shakespeare’s complete works, each worth £1. Treat these as imported consumer goods. What is GDP this year? (Note: Emphasize the “P” in GDP when considering your answer.) What are C, I, X, and Ythis year? (Note: One of the four is bigger than usual, one is negative.)

E. Is Crusoe probably happy about what happens in question 5c? Is he probably happy about what happens in question 5d? Keep these answers in mind for when we discuss the economics of trade later on.

Answer 1