Question

Sharon has opened a new startup company in web design. Within the first month of business, the startup agrees to maintain an accounting firm’s website in exchange for someone doing their tax returns.

Which of the following principles of economic interaction best describes this scenario?

1-Markets allocate goods effectively.
2-When markets do not achieve efficiency, government intervention can improve overall welfare.
3-Trade can make everyone better off.
4-All costs are opportunity costs.

Answer 1

3) Trade can make everyone better off.

Step-by-step explanation:

In this case, Sharon's opportunity cost of providing internet services to the accounting firm are lower than the actual costs of paying for the accounting services. The same happens to the accounting firm, whose costs of providing the accounting service are much lower than the costs of paying for internet related services.

So both are benefiting because they are trading the service in which they hold a comparative advantage and they receive a service with a high opportunity cost for them.

Answer 2

trade can make everyone better off.

Step-by-step explanation:

The aim of trade is to make all parties involved better off than they were before the trade occured. For example in international trade a country sells items they have reduced cost producing, while they buy items that will be expensive for them to produce.

In this instance the web startup is offering to give the accounting firm a service they have (web hosting) for tax return service.

Everyone is better off at the end of the day because they obtained a service they could not perform alone.