Question

Suppose that the amount of time required for the electrician or the carpenter to complete a job of rewiring or paneling is given by the following table: Rewiring Paneling Electrician 5 hours 10 hours Carpenter 10 hours 15 hours

a. Compute the costs of performing each of these tasks for each individual.

b. Who has the comparative advantage at rewiring? At paneling?

c. Suppose that the more efficient rewirer does all of the rewiring and the more efficient paneler does all of the paneling. Does this trade benefit the electrician? Does it benefit the carpenter?

d. Suppose that a different trade is worked out whereby the electrician rewires the carpenter’s entire house in exchange for the carpenter’s doing 3/5 of the electrician’s paneling job. Now how much time does each spend working? Do they each benefit? Note: This problem illustrates the fact that when different parties have different comparative advantages, there is always some trade that will benefit both. However, not any trade will benefit both; the trade must take place at an appropriate relative price.

Answer 1