Question

In one month, Mikhail’s Furnishings can make 160 carpets or 160 quilts, while Dominique’s Parlor can make 120 carpets or 200 quilts. Currently, Mikhail’s is making 80 carpets and 80 quilts per month while Dominique’s is making 60 carpets and 100 quilts. If from now on Mikhail’s starts making nothing but carpets and Dominique’s makes nothing but quilts, and the two shops trade 90 quilts from Dominique’s for 70 carpets from Mikhail’s every month, what will be each shop’s gain from trade? Answer the question by matching gains to shop.

Answer 1

Explanation:

Mikhail’s Furnishings: 160 carpets or 160 quilts

Dominique’s Parlor: 120 carpets or 200 quilts

Current production per month

Mikhail’s: 80 carpets and 80 quilts

Dominique’s: 60 carpets and 100 quilts

Post-trade

Mikhail’s: produces 160 carpets

Dominique’s: produces 200 quilts

They trade 90 quilts for 70 carpets so at the end of trade they will have items as follows

Mikhail’s carpets will reduce from 160-70=90 carpets but have additional 70 quilts

Dominique’s quilts will reduce from 200-90=110 but have additional carpets of 70

Gains from trade

Comparing outcome of post-trade with current production

Mikhail’s Furnishings: 90 carpets-80 carpets=10 carpets

90 quilts-80 quilts=10 quilts

Dominique’s Parlor: 70 carpets -60 carpets=10 carpets

110 quilts-100 quilts=10 quilts