Why Even the Best Should Trade
Written by Studio AM.
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Suppose Mira can bake four loaves in an hour or repair two pairs of shoes. Her neighbor Leon can bake one loaf or repair one pair in the same time. Mira is faster at both jobs, but they may still benefit from trade.
Compare what each must sacrifice. To repair one pair, Mira gives up the time needed to bake two loaves. Leon gives up only one loaf. He therefore has a comparative advantage in shoe repair: his opportunity cost is lower. Mira has the comparative advantage in baking, even though she can also repair shoes faster.
They could arrange an exchange. If Leon receives more than one but fewer than two loaves for repairing a pair, both improve on what producing it alone would cost. The exact agreement depends on what each needs and accepts.
Comparative advantage concerns the alternative given up, not simply speed. In this simplified example, different relative costs create room for a useful trade. Real exchanges also involve transport, time, and other practical costs.
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Questions
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Question 1 of 4
The passage mainly explains
The answer is A: why trade can help both, even when one is better at everything
The example shows that different opportunity costs can make trade useful even when one person is faster at both tasks.
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Question 2 of 4
Which task gives Mira the comparative advantage in this example?
The answer is A: Baking bread
Mira gives up fewer shoe repairs for each loaf than Leon does, so her comparative advantage is in baking.
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Question 3 of 4
Why does Leon have a comparative advantage in repairing shoes?
The answer is A: He gives up one loaf per repair, compared with Mira’s two.
The comparison is the bread forgone per repair, not the number of repairs completed per hour.
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Question 4 of 4
In this passage, “sacrifice” means to
The answer is D: give up the least
The next sentences compare the loaves each person gives up to repair a pair of shoes.
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