• Chapter 3
• ACTIVE LEARNING #3
• Applying the Principles

• Explain the gains from trade that arise for both buyers and sellers in the following transactions:
• Neighbors Jordan and Chelsea are both working parents. They can hire a single babysitter to care for both of their toddlers for 75% of what they would collectively pay for two separate babysitters.

• Callie accepts an extra shift at work and hires a cleaning service to clean her apartment

• Argentina and Brazil each have 10,000 hours of labor per month. In Argentina, producing one pound of coffee requires 2 hours, while producing one bottle of wine requires 4 hours. In Brazil, producing one pound of coffee requires 1 hour, while producing one bottle of wine requires 5 hours.

• Which country has an absolute advantage in the production of coffee?Why?

• Which country has a comparative advantage in the production of wine? Why?

• Suppose if Liz devotes all her time to market work she brings in $500 per week, and if she devotes her time to nonmarket work she produces goods/services worth $400. If Ed, her husband devotes his time to market work he brings in $1000 per week, and if he devotes his time to nonmarket work he produces $420 per week

• Can Ed and Liz benefit from trade?

• Suppose that in a year an American worker can produce 100 shirts or 20 computers and a Chinese worker can produce 100 shirts or X computers.

• For what values of X will China export shirts and import computers? Explain.