voluntary exchange

When individuals engage in a voluntary exchange, both parties are made better off. In the above example, Janet has the option of accepting or declining Brad’s offer of a trade. If she accepts his offer, she does so voluntarily. Janet would agree to this exchange only if she expects to be better off as a result. Because she likes tomatoes better than onions, Janet’s enjoyment of her salad will be greater with this trade than without it. On the other side, Brad has voluntarily made this offer of an exchange to Janet because Brad believes he will also be better off as a result of the exchange.
People tend to think of making, building, and creating things as productive activities.
Agriculture and manufacturing are like this. They create something genuinely new, something that was not there before. On the other hand, trade-the mere exchange of one thing for another4oes not create new material items. You might be tempted to think that if goods are merely being traded, one party will be better off and the other worse off. A closer look at the motivation for trade helps us see through this popular fallacy. Exchange takes place because both parties expect it will make them better off. If they didn’t, they wouldn’t agree to do it. For example, if Janet liked onions better than tomatoes, she wouldn’t have traded with Brad. The fact that she agreed to the trade means she thinks she has something to gain by doing so. Brad thinks the same thing when it comes to his tomatoes. In other words, because their exchange is voluntary, both Janet and Brad are made better off.

Trade creates value

Why do individuals trade with each other, and what is the significance of this exchange? We have learned that value is subjective. It is wrong to assume that a particular good or service has a fixed objective value just because it exist^.^ The value of goods and services generally depends on who uses them, and on circumstances, such as when and where they are used, as well as on the physical characteristics. Some people love onions, whereas others dislike them exceedingly. Thus, when we speak of the “value of an onion,” this makes sense only within the context of its value to a specific person. Similarly, to most people an umbrella is more valuable on a rainy day than on a sunny one.
Consider the case of Janet, who loves tomatoes but hates onions, and Brad, who loves onions but hates tomatoes. They go out to dinner together and the waiter brings their salads. Brad turns to Janet and says, “I’ll trade you the tomatoes on my salad for the onions on yours.” Janet gladly agrees to the exchange. This simple example will help us illustrate two important aspects of voluntary exchange.

Opportunity cost and the real world

Is real-world decision making influenced by opportunity costs? Consider your own decision to attend college. Your opportunity cost of going to college is the value of the next best alternative, which could be measured as the salary you would earn if you had chosen to go directly into full-time work instead. Every year you stay in college, you give up what you could have earned by working that year. Typically, students incur opportunity costs of $80,000 or more in forgone income during their stay in college.

But what if the opportunity cost of attending college changes? How will it affect your decision? Suppose, for example, that you received a job offer today for $250,000 per year as an athlete or an entertainer, but the job would require so much travel that school would be impossible. Would this change in the opportunity cost of going to college affect your choice as to whether to continue in school? It likely would. Going to college would mean you would have to say goodbye to the huge salary you’ve been offered. You can clearly tell from this example that the monetary cost of college (tuition, books, and so forth) isn’t the only factor influencing your decision. Your opportunity cost plays a part, too.

Even when their parents pay all the monetary expenses of their college education, some students are surprised to learn that they are actually incurring more of the total cost of going to college than their parents. For example, the average monetary cost (tuition, room and board, books, and so forth) for a student attending college is about $10,000 per year (S40,OOO over four years). Even if the student’s next best alternative were working at a job that paid only $15,000 per year, over four years, that would amount to $60,000 in forgone earnings, So, the total cost of the student’s education would be $100,000 ($40,000 in monetary costs paid by the parents and $60,000 in opportunity costs incurred by the student).

Now consider another decision made by college students-whether to attend a particular class meeting. The monetary cost of attending class (bus fare, parking, gasoline costs, and so on) remains fairly constant from day to day. Why then do students choose to attend class on some days and not on others? Even though the monetary cost of attending class is fairly constant, a student’s opportunity cost can change dramatically from day to day.

Some days the next best alternative to attending class may be sleeping in or watching TV. Other days, the opportunity cost may be substantially larger, perhaps the value of attending a big football game, getting an early start on spring break, or having additional study time for a crucial exam in another class. As options like these increase the cost of attending class, more students will decide not to attend.

Failure to consider opportunity cost often leads to unwise decision making. Suppose that your community builds a beautiful new civic center. The mayor, speaking at the dedication ceremony, tells the world that the center will improve the quality of life in your community. People who understand the concept of opportunity cost may question this view. If the center had not been built, the resources might have funded construction of a new hospital, improvements to the educational system, or housing for low-income families. Will the civic center contribute more to the well-being of the people in your community than these other facilities? If so, it was a wise investment. If not, your community will be worse off than it would have been if decision makers had chosen a higher valued project.

Enroll at university of phoenix new orleans and give yourself a lot of opportunities.