Suppose that towns collect resources from their surroundings. Then, through trade, they attempt to obtain other desirableitems. Mortarville, an urban town that specializes in brick and ore, wants wood to build roads so that it can expand andconnect to other major cities. Mortarville has a willingness to pay $50 for wood, since wood is hard for them to obtainMayflair also needs wood to build grain silos for their wheat harvests. Mayflair is willing to pay $45 for wood. Timber, theonly foresting company, sets the price of wood at $60.The change in total surplus that arises due to trades between Timber and the towns isJohn finds a set of wood in his garage which he is willing to sell for no less than $35. John chooses to sell the set to Mayflairfor $40 instead of to Mortarville for $45.As a result of John's transaction with Mayflairtotal surplus increased, but the market is inefficienttotal surplus decreased, and the market is inefficienttotal surplus increased, and the market is efficienttotal surplus decreased, but the market is efficient.

From the trade between Timber and towns, the change in total surplus is zero.

Answered: Suppose that towns collect resources…

Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781305971509

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter3: Interdependence And The Gains Rrom Trade

Section: Chapter Questions

Problem 3CQQ

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