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You are voluntarily exchanging your money and your human capital for this class. ... You provide money to the grocer, you get the goods and services you ...
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Slide 1:The Magic of Exchange
One persons trash is another persons treasure.
Slide 2:Petes Bat and Sams Shoes
Slide 3:Sams Bat and Petes Shoes
Slide 4:Why does exchange create wealth?
One persons trash is anothers treasure. Peoples evaluation of goods and services are subjective and different.
Slide 5:The Principle of Exchange (an application of benefit/cost analysis)
People will exchange if they expect to gain more than they give up --- if the expected benefit is greater than the expected cost.
Slide 6:Voluntary Exchange No Rip Offs!
When agreeing to exchange, both parties expect to gain more than they give up.
Slide 7:The Gasoline Rip Off
Gasoline prices are ridiculous; international oil companies are ripping you off! Did you buy the gas? Why did you buy the gas? Using marginal analysis, you compared the benefits of coming to school to the opportunity cost of the funds used to buy the gas. The benefits outweighed the cost! You gained. The gas station owner gained also.
Slide 8:When it doesnt work
Lack of information Misinformation -- fraud Asymmetric information
Slide 9:Employment as Voluntary Exchange
Employers must gain I hate my job! Use marginal analysis to explain: Why SF Giants might let Barry Bonds go? Why might he decide to leave Why the SF 49ers let Jerry Rice go? Why did he decide to leave and go to the hated Oakland Raiders?
Slide 10:Education as Voluntary Exchange
You are voluntarily exchanging your money and your human capital for this class. Why? Many high school students dont expect to gain from school. How does that affect the nature of the exchange?
Slide 11:Voluntary Exchange Creates Wealth.
Wealth is the value that people place on their assets, both human and non-human. After voluntary exchange, both parties should place a higher value on their assets than before the exchange. They gave up something of less value than they gained. If only two people voluntarily exchange, wealth is created.
Slide 12:Barter exchanges are inefficient.
Barter exchanging goods for goods Must have mutual coincidence of wants You have to want what I have and I have to want what you have. Otherwise we might have to make many transactions before getting the thing we want.
Slide 13:Transaction Cost
Opportunity costs of facilitating exchange Searching for the product (search cost) Arranging for the exchange Agreeing to the terms of exchange Dead weight loss In exchange, your cost is someones gain. With transaction cost, your cost is no ones gain.
Slide 14:Money
A way of exchanging personal resources for goods and services You are a carpenter You exchange your human capital for money You exchange money for goods and services You exchanged your human capital for goods and services
Slide 15:You provide your human capital to a firm; the firm provides you with money.
Slide 16:You provide money to the grocer, you get the goods and services you desire.
Slide 17:Money is a tool for exchanging resources for goods and services
Slide 18:Money minimizes transaction cost.
No need for mutual coincidence of wants. You sell what you have to someone who wants it. You get money. You use the money to buy what you want. The person selling what you want does NOT have to want what you produce.
Slide 19:Further reduction of transaction costs.
Credit and debit cards ATMs The Internet Direct deposit Posting menus outside restaurants
Slide 20:Main Points
Because peoples evaluations of goods and services are subjective and different, both parties can benefit from exchange, increasing wealth. The Principle of exchange people will exchange if they expect to gain more than they give up. When people voluntarily exchange, there are no ripoffs.
Slide 21:Main Points
Assymetric information reduces the probability that both parties will benefit from exchange. Transaction costs opportunity costs involved with exchange dead weight losses include search costs Money facilitates exchange by reducing transaction costs.
