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Why do we exchange things?

by Learn Liberty

If we each have a boxed lunch with the same sandwich, chips, a pickle, and a cookie, why would we consider trading items? Perhaps I prefer chips and you prefer cookies. Maybe I'll give you my cookie for your chips. Now both of us are happier with our lunches. This is one example of how exchange can make people better off even without increasing the total amount of wealth. Exchange helps correct mistakes in allocation and it makes everyone involved happier. Professor Michael C. Munger offers a few examples of how exchange can make people happier whether people have the same preferences or different preferences, the same stuff to start with or different stuff. The ability to make people better off by simple exchange may seem like magic, Munger says, but it's just markets.

Sugashane has the following to say on the subject:

Markets are this amazing organic machine that sorts out what best fits where, how much do of what we need, how much each thing should cost and any other unknown we may have on an individual level.

This is because a market doesn’t need leadership or guidance or any form of planning or even creation or assembly of the market. It only requires participation. So long as there are enough parties that are willing to participate in exchange, the market will filter through all the information and coordinate the rest of the details. It sounds like magic, but it’s not. It’s logic.

This phenomenon is one of my favorite things to introduce to people who are knew to economics or free market theory. It totally blows their mind at first, almost to the point that they don’t believe it or even deny it.

Markets!

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Resources

You can make use of the following text and video to expand your knowledge and understanding of the topic covered in this unit.

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