Economics- Opportunity Cost and Indifference Curves Analysis

Economics- Opportunity cost and indifference curves

Name

Institution

Date

ECONOMICS

Mike and Abdul go to Walt Whitman High School. Mike has 20 comic books and no game, while Abdul has no comic book and 10 games. Mike is boring of reading comic books, and Abdul is boring of playing games. In school, Mike and Abdul reach agreement that they trade some of their stuffs each other. 6 comic books of Mike are traded for 3 games of Abdul. They are now much happier than before, because they both read and play.

Question: Write down 2-3 pages of essay that includes the answers for the following contents.

1) Which economic law is applied for this transaction (trade)?

Bartering is an alternative to trade using money (currency) where there is value for money to measure the value of the transactions. The US dollar remains the world’s major reserve currency, and in international trade people mainly purchase products using the dollar. However in third case, there is barter trade where comic books are exchanged for games where there is direct transaction without using a medium of exchange. Countries issue money using the central banks and when there are barter transaction money does not change hands, and the value of transactions depends on what both parties believe is fair in this case Mike gives up 6 comic books and gains 3 games and vice versa. The first condition for exchange of goods is surplus and a person company, country has a surplus, they can exchange it for a product owned by another entity. There is demand and supply dynamics where Mike supplies 6 comic books and in turn receives 3 games from Abdul.

2) What is the new commodity bundle for Mike and Abdul after trade?