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March 28, 2017

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Why does trade of any type take place? Illustrate your answer by reference to each of the following:
1.
Market exchange in which price is determined by Demand and supply. (refer in your answer to producer and consumer surplus)
2.
Exchange between two individuals based on differences in tastes given a fixed endowment of two goods.
3.
International trade


Take a shot, why would trade take place. Hint: under trade, both sides are better off.

what does fixed endowment of two goods mean ? that means i have 5 apples and someone else has 5 oranges. but we both cannot buy any additional apples or oranges? and the last option we have is to trade due to difference in taste??

i am abit confused about part 2.

  • Mirco economics - ,

    Endownment in economics is the value one places on a certain object...

    so in this case, i think fixed endowment just means u wud value the oranges as much as the apples

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