According to the data, if Mr. X and Ms. Y have the opportunity to trade, which of the following will be mutually beneficial?

Question

BlackTom AI · Accepted Answer

To approach this question, I will compare the given labor hours for each good and identify who has the comparative advantage in bread and in shoes.
Option 1: 'Ms. Y buys both bread and shoes from Mr. X' suggests no specialization or trade benefits, since it implies both goods come from X. This is unlikely to be mutually beneficial because each person has a comparative advantage in at least one good, so a split of production would yield higher total output if each specializes. Therefore this option is not optimal.
Option 2: 'Ms. Y sells both bread and shoes to Mr. X' implies Y produces both goods and X consumes them all. Since both goods can be produced more efficiently by different parties (specialization), this would waste potential gains from trade. X would bear the opportunity costs without producing either good, making this arrangement unlikely to be mutually beneficial.
Option 3: 'Ms. Y sells bread to and buys shoes from Mr. X' describes Y specializing in bread and X specializing in shoes, with trading bread for shoes. Looking at the data, X requires 1 hour per loaf of bread and 5 hours per pair of shoes, while Y requires 0.5 hour per loaf of bread and 2 hours per pair of shoes. Calculating comparative advantage:
- For bread, X’s opportunity cost is 0.2 pair of shoes per loaf (1 loaf vs 1/5 pair shoes), while Y’s is 0.25 pair of shoes per loaf (0.5 hour allows 0.25 pair shoes). Since X has the lower opportunity cost for bread, X should specialize in bread.
- For shoes, X’s opportunity cost is 5 loaves of bread per pair of shoes, while Y’s is 2 loaves per pair of shoes. Y has the lower opportunity cost for shoes, so Y should specialize in shoes.
Thus, X should produce bread and Y should produce shoes, and they should trade bread for shoes. This matches the description in Option 3, making it a mutually beneficial trade.
Option 4: 'Ms. Y sells shoes to and buys bread from Mr. X' reverses the direction of trade. If Y specializes in shoes and X in bread (as the comparative advantages indicate), this option would reverse who supplies which good and would not align with the gains from trade scenario identified above. Hence it is not the optimal mutually beneficial pattern.
Option 5: 'Ms. Y and Mr. X do not trade with each other' ignores the potential gains from trade entirely. Given the comparative advantages, both can be better off by trading, so this option is incorrect.
In summary, the only arrangement that aligns with the concept of mutually beneficial trade based on comparative advantage is Option 3: Ms. Y sells bread to and buys shoes from Mr. X, enabling specialization and mutually advantageous exchanges.

AP Economics-Hillebrand AP Microeconomics Sem 1 Exam 2025 - Requires Respondus LockDown Browser

According to the data, if Mr. X and Ms. Y have the opportunity to trade, which of the following will be mutually beneficial?

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