The gains from trade don\'t only occur at an international level. In the next se

Question

The gains from trade don't only occur at an international level. In the next set of questions, you'll consider how specialization can be beneficial at a much more micro level. Use the following information for Problems 10-12. Suppose Marty and Rust are detectives and solve two types of crimes: homicides and burglaries. Further suppose that the detectives can trade cases (in the sense that they can exchange which cases they sign off on) and that there are no additional detectives to trade cases with. The following table summarizes the number of cases they can close in a month. This implies that over the course of the month, Rust could solve 4 homicides and 0 burglaries, 20 burglaries and 0 homicides, 1 homicide and 15 burglaries, etc. Productivity Marty Rust Homicides 2 per month 4 per month Burglaries 16 per month 20 per month 10. Would these two detectives ever choose to trade with each other? a. Yes; both detectives can gain from trading cases. b. No; Rust will not want to partner with Martjy c. No; Marty will not want to partner with Rust. 11. Suppose Marty agrees to trade cases with Rust as long as he couldn't have done it quicker himself. Is it possible for Rust to solve 25 burglaries in a month? a. Yes b. No 12. Suppose Marty agrees to trade cases with Rust as long as he couldn't have done it quicker himself. Is it possible for Rust to solve 30 burglaries in a month? a. Yes b. No

Explanation / Answer

10) ans is A

Yes both can benefit from trade. According to Rocardian theory, if both specializes according to comparative advantage then both can be made better off.

11)No because Marty cant solve cases more than 16 burglaries. And according to comparative advantage theory Marty should solve cases Burglaries and maximum cases Marty can solve is 16 and Rust will solve homicides.

12) No same as 11.

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