Voluntary Exchange Voluntary Exchange In the freemarket buyers

Voluntary Exchange

Voluntary Exchange In the free-market, buyers and sellers voluntarily come together to seek mutual benefits.

Voluntary Exchange In the free-market, buyers and sellers voluntarily come together to seek mutual benefits.

Voluntary Exchange In the free-market, buyers and sellers voluntarily come together to seek mutual benefits.

Voluntary Exchange In the free-market, buyers and sellers voluntarily come together to seek mutual benefits.

Example of Voluntary Exchange You want to buy a truck so you go to the local dealership. You are willing to spend up to $20, 000 for a new 4 x 4. The seller is willing to sell this truck for no less than $15, 000. After some negotiation you buy the truck for $18, 000. Analysis: Buyer’ Maximum- $20, 000 Sellers Minimum- $15, 000 Price- $18, 000 Consumer’s Surplus- $2, 000 Producer’s Surplus- $3, 000

Voluntary Exchange Terms Consumer Surplus is the difference between what you are willing to pay and what you actually pay. CS = Buyer’s Maximum – Price Producer’s Surplus is the difference between the price the seller received and how much they were willing to sell it for. PS = Price – Seller’s Minimum

The Pearl Exchange WARNING: Many students complain that their teachers don’t do enough hands-on activities. Many teachers complain that hands -on activities are a waste of time because the students slack off. I promise to create fun and meaningful activities, if you promise to actively participate and stay focused. NO ANCHORS!

The Pearl Exchange There will be four trading sessions. In each session, you can only buy or sell ONCE. When you make a deal, shake hands and come to the board to record your negotiated price. Then go back to your seat and record your surplus in the table. If you do not make a sale or purchase, you take the entire minimum or maximum price for a LOSS. Are you the best negotiator in the class? Let’s find out. Good Luck!

Supply and Demand Analysis Easy as 1, 2, 3 1. Before the change: • Draw supply and demand • Label original equilibrium price and quantity 2. The change: • Did it affect supply or demand first? • Which determinant caused the shift? • Draw increase or decrease 3. After change: • Label new equilibrium? • What happens to Price? • What happens to Output (Quantity)?

Round 1: Supply of pearls decreased when Oysters died P S 1 PE S Why? At the original PE there is a shortage so prices increased D o Q 1 QE Q 11

Voluntary Exchange Activity

Round 4: Demand decreased as buyers left the market to go buy a substitute product (diamonds) P Why? At the original PE there is a surplus (Qd<Qs) so prices fell S PE P 1 D D 1 o Q 1 QE Q 13