Exercises: Trade, welfare and inequality

Explain with a playground example (swapping stickers, sandwiches, or study notes) why two people exchange things voluntarily. What condition must be met for both to benefit?

Look at your breakfast today and on any given day: oranges, bread, cocoa, banana, sugar. Find out (or reason) which ones might come from your local region and which come from other countries, and explain what long-distance trade offers us that would be impossible to produce locally alone.

The diagram shows an exchange between two town neighbours: Ana has oranges from her orchard and Biel bakes bread. They swap $4$ kg of oranges for $2$ loaves of bread.

1. a) Explain why Ana and Biel accept the exchange without anyone forcing them.
2. b) Imagine that Biel only wants oranges if he is given $6$ kg per loaf. What would happen to the exchange? What role does the agreed 'price' play?

Explain what barter is and what two difficulties it has (finding someone who wants exactly what you offer, agreeing how much each thing is worth). Illustrate it with a sticker swap that went wrong.

Money solves the problems of barter. Name its three functions — medium of exchange, unit of account (measuring value) and store of value (keeping it for later) — and identify which one is used in each case: (a) you compare the price of two hoodies; (b) you pay for the bus; (c) you keep $15\ \text{€}$ in your money box for December.

Explain what specialisation is with an example from school: at the end-of-year party, each class prepares one thing (food, music, decoration) instead of every class doing everything. What is gained and what is lost by specialising?

Look at the labels of three garments or products you have nearby and note where they were made. Explain what that tells you about international trade and name two things you use daily that would be impossible to produce in your region.

Explain in your own words what inequality is and distinguish income inequality (what is earned) from wealth inequality (what has been accumulated). Give an example of each between two fictional families from the same neighbourhood.

Marta takes $10$ minutes to make a bracelet and $20$ to make a keyring; Leo takes $20$ minutes per bracelet and $15$ per keyring. Each of them has $60$ minutes available.

1. a) Calculate how many bracelets and how many keyrings each person can make if they devote all their time to a single product.
2. b) If they specialise (each working only on what they can do faster) and then trade, explain why together they produce more than if each worked individually.

At the local market, Mei sells homemade jam at $4\ \text{€}$ per jar. A customer would have bought it even if it cost $6\ \text{€}$, and Mei would have sold it even if she was paid $3\ \text{€}$. Explain what each person gains from this deal, what this gain is called, and what would happen if the price rose to $5,50\ \text{€}$.

In Iker's neighbourhood, there are three families with very different incomes: a couple of doctors, a family with two supermarket wages, and a grandmother with a small pension. Explain what economic inequality is, name two causes that create it, and one consequence it can have on the projects that each family can afford to undertake.

In one hour, Aina can prepare $6$ sandwiches or $4$ fruit trays; Enzo can prepare $3$ sandwiches or $3$ trays.

1. a) Calculate the opportunity cost of each person per product (how many trays a sandwich costs Aina, and vice versa).
2. b) Determine who has the comparative advantage in each product and explain why, even though Aina is better at everything, it pays both of them to specialise and trade.

The neighbourhood greengrocer's charges $2\ \text{€}$ for a kilo of tomatoes. The greengrocer would have been willing to sell them at $1,50\ \text{€}$ and one customer would have paid up to $2,80\ \text{€}$.

1. a) Calculate the producer surplus and the consumer surplus in that exchange and explain what each one measures.
2. b) Explain what happens to that total surplus if the council forces the kilo to be sold at $1\ \text{€}$ and the greengrocer decides to bring fewer tomatoes.

A village has two poles of employment: the organic farm, which pays little but steadily, and the construction site, which pays more but only seasonally. Explain how this difference in offers generates income inequality between neighbours of the same age and education, and propose two local measures that could reduce it without banning anything.

Your class organises a barter market: everyone brings three objects to swap, with no money. Predict two problems that will come up (different valuations, not finding a swap partner) and design a solution for each (exchange points, a board of offers and wants). What does this game teach us about why money exists?

A pair of trainers sells for $90\ \text{€}$. It is estimated that the materials cost $12\ \text{€}$, manufacturing $8\ \text{€}$, transport $5\ \text{€}$, advertising $20\ \text{€}$ and the shop keeps $25\ \text{€}$; the rest is the brand's profit.

1. a) Calculate the brand's profit per pair and the percentage of the final price that manufacturing represents.
2. b) Analyse what this split says about who captures the value along the chain and propose one question an informed consumer should ask before buying them.

For $40$ years, the canning factory employed half of Rosalía's village. Two years ago it closed down and production moved to another country where labour is cheaper. In the village there is now less employment, but in the supermarkets tinned food costs $20\ \%$ less.

1. a) Analyse who wins and who loses with this change, inside and outside the village.
2. b) Propose two measures that could have made the transition fairer for the village and evaluate their cost.

In a fair trade cooperative, a pack of coffee costs 8,00 €, compared to 6,00 € for conventional coffee. The breakdown of the retail price shows the following:

• Conventional coffee (6,00 €): 0,60 € for the farmer; 3,20 € for intermediaries and processing; 2,20 € for the supermarket.

• Fair trade coffee (8,00 €): 2,40 € for the farmer; 3,40 € for the cooperative, certification, and processing; 2,20 € for the shop.

1. a) Interpret the data: calculate what percentage of the final price the farmer receives in each case and justify why the free market on its own tends to leave small producers with such a small margin (analyze their bargaining power against large distributors).
2. b) Design two measures that allow the cooperative to reduce the 2,00 € gap with conventional coffee without cutting the farmer's compensation or giving up social standards, and justify the feasibility of each one.

In an economic panel discussion, an analyst states: "If two people or two countries trade voluntarily, it is impossible for inequality to increase, since both are better off compared to their initial situation; therefore, trade is always fair and benefits everyone equally."

1. a) Refute the statement by demonstrating with a specific example how an exchange in which both parties gain can, at the same time, trigger soaring economic inequality between them. In your response, analyze the distribution of surplus and asymmetry in bargaining power.
2. b) Predict what economic consequences a group or region lacking productive resources, technology, or skills to participate in global trade exchanges will suffer, and justify why free trade can worsen their situation of exclusion.

In a wine-growing region, an international supermarket offers to buy the entire grape harvest at a price $30\ \%$ higher than the local cooperative, but demands packaging and logistics that only a big company can afford. Small producers fear being left out.

1. a) Analyse who wins and who loses if the offer prevails, inside and outside the region.
2. b) Propose two possible responses from the local cooperative (its own quality label, direct sales, joining together to negotiate) and assess the risks of each.

A multinational company sells cotton T-shirts in Spain for 5,00 €. Its value chain is divided among three countries: the cotton is grown in country A (with state subsidies), spun and manufactured in country B (where wages are 1,50 € a day and environmental regulations are almost non-existent), and marketed in country C (Spain). Maritime transport between countries only adds 0,15 € in cost per garment.

1. a) Justify economically why it is profitable for the company to fragment production instead of manufacturing locally, connecting comparative advantages, labor costs, and negative externalities not reflected in the price in your explanation.
2. b) If the European Union were to approve a countervailing tariff of 4,00 € per garment on imports that do not meet minimum labor and environmental standards, predict what effects it would have on the final price, the company's decisions, and the workers in country B, assessing possible unintended consequences.

Two neighbourhoods in the same city: in one, $40\ \%$ of young people finish sixth form; in the other, $90\ \%$. Average family incomes also differ greatly.

1. a) Explain how starting inequality is passed from one generation to the next (education, contacts, the projects that can be undertaken) and why people say it is 'inherited'.
2. b) Propose two concrete local policies to break that circle and analyse their cost and who should pay it.

'Fair trade is nonsense: if you want to help poor producers, give them the money directly instead of paying more for coffee.'

1. a) Summarise the argument and detect what it assumes about how charity and the market work.
2. b) Rebut it or defend it with reasons: what difference there is between depending on donations and selling your product at a fair price, in terms of dignity, stability and incentives.

Your city is considering banning holiday flats in the centre so that rents for residents come down. Owners say it is their property and their business; families say they can no longer live there.

1. a) Analyse the conflict with the language of the topic: what is exchanged, who wins and who loses with holiday flats, and which inequalities they make worse.
2. b) Propose an intermediate regulation (limits, licences, zones) and defend it by explaining what balance you are seeking between the right to trade and the right to housing.