Answered: A Gain from Trade occurs when a unit is…

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter3: Demand And Supply

Section: Chapter Questions

Problem 25RQ: How does one analyze a market where both demand and supply shift?

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A Gain from Trade occurs when a unit is sold for a price greater than the unit of the good is worth to a seller and, simultaneously, bought for a price less than the good is worth to a buyer.

Consider the first 2 units of the good that would be sold in this market (the vertical red line on the graph). Which answer choices are correct?

If Kai and Mint sold one unit each to Gob and Yam at a price of $6, the trade would be mutually beneficial.

At a price of $6, Gob would benefit by $3 because she is paying $6 for a unit of the good which is worth $9 to her.

At a price of $6, Kai would benefit by $4 because she is getting $6 for a unit of the good which is worth $2 to her.

For the first 2 units of the good there is potential gain from trade of $7 for each of the 2 units.

For the first 2 units of the good sold the difference between the value to buyer and seller is $9 each. This means there is a potential gain from trade of $9 per unit.

If the first 2 units of the good were exchange at a price of $7, Gob and Yam would be better off by $3 each-the difference between what the units are worth to them and the price they paid.

If the first 2 units of the good were exchange at a price of $7, Kai and Mint would be better off by $3 each-the difference between what the units are worth to them and the price they received.

If the first 2 unit of the good were exchanged at a price of $6, the potential gain from trade of $7 for each of the units exchanged in divided so that both the buyer and the seller get a portion of the total gain.

At a price of #6 more of the potential gain goes to the buyers.

At a price of #6 more of the potential gain goes to the sellers.

Quantity Demanded
Fon
Nam
Market
Demand
12
Price
Ying
Som
Gob
Yam
10
1
2
2
2
4
4
4
10
6
1
4
2
6
21
1
3
6
8
26
4
1
3
8.
29
3
8
10
36
1
5
10
9
10
40
1.
1
7
12
11
10
48
8
-Market Supply
6
-Market Demand
4
Quantity Supplied
Apple
11
Market
Price
10
Boom
Oiy
Cartoon
Kai
10
Mint
Supply
42
1
9
8
5.
10
10
34
31
2
7
8
24
6
3
3.
21
5
6.
5
14
4
1
9
4
2
4
2
4
2
1
1
2
02 units
10
20
30
40

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