Voluntary Exchange

When two people engage in trade, both sides will benefit if the trade meets which two requirements?

• voluntary and non-fraudulent

• non-voluntary and fraudulent

• free and international

• rational and marginal

Susan offers to trade her old iPod for Claudia's cell phone and Claudia accepts. Assuming both products work perfectly, we can conclude that

• both people have gained because the exchange was voluntary and non-fraudulent.

• Susan places the same value on cell phones as she does for iPods.

• neither party has gained because the exchange was fraudulent.

• Claudia is now happier than Susan.

What is the relationship between specialization and voluntary exchange?

• voluntary exchange causes specialization

• specialization exists because of voluntary exchanges

• voluntary exchange negates the need for specialization

• specialization leads to a need for voluntary exchange

A ______ _______a type of transaction where two parties freely trade goods or services.

• command economy

• involuntary exchange

• voluntary exchange

• mixed economy

The idea underlying free or open trade is that different people place different ______ values on items. People tend to give up items they value ______ than the item they are getting in exchange.

• emotional, less

• emotional, more

• marginal, less

• marginal, more

You pay $60 for 15 gallons of gas at the gas station. Why does this voluntary exchange happen? (Pick 2)

• Because you need gas.

• Because the gas station owner needs money.

• For the gas station owner, because the marginal benefit of getting your $60 is greater than the marginal cost of giving you 15 gallons of gas.

• For you, because the marginal benefit of getting 15 gallons of gas is greater than the marginal cost of losing $60.

What is the BEST explanation for why people trade?

• Because they don't like what they have

• Because they want what someone else has

• When the marginal benefit of the trade exceeds its marginal cost

Which is true of a voluntary exchange?

• The buyer benefits.

• The seller benefits.

• Both sides benefit or they wouldn't make the trade.

• Neither side benefits.

True or false: For an exchange to be voluntary, both sides need to know what they are exchanging. They need accurate information.

• True

• False

As people traded, what happened to the aggregate utility of the traders?

• increased

• decreased

• stayed the same