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This chapter is our first look at how individuals exchange. We have emphasized two points:
In reality, individuals differ across these two dimensions and more.Chapter 9 "Making and Losing Money on Wall Street" explores two further reasons for trade: differences in information and differences in attitudes toward risk.
Auctions such as eBay, newspaper classified advertisements, and sites such as craigslist are all means by which individuals in an economy can trade with one another. Of course, these are not the only forms of trade. Our discussion, by design, has ignored other common forms of trade in the economy, such as individuals buying goods and services from a firm (perhaps through a retailer) and individuals selling their labor services to firms.Such exchanges are discussed in Chapter 6 "Where Do Prices Come From?" and Chapter 7 "Why Do Prices Change?".
The biggest insight you should take away from this chapter is the fact that exchange is a means of creating value. When a seller sells a good or a service to a buyer, there is a presumption that both become better off. We have such a presumption because people enter into trades voluntarily: nobody forces a buyer to buy; nobody forces a seller to sell. The fact that voluntary exchange creates value is one of the most powerful ideas in economics.
(Advanced) Create a spreadsheet to input data like that in the first two columns of Table 5.4 "Production Possibilities for Julio and Hannah". Suppose there are two people who can produce two goods. Enter into the spreadsheet how much of each good they can produce in an hour.