The document discusses the concept of voluntary exchange in a free market system. It states that in a free market, buyers and sellers voluntarily come together to seek mutual benefits through exchange. An example is provided of a buyer purchasing a laptop from a seller for a negotiated price between what the buyer was willing to pay and the minimum the seller was willing to accept. Key terms around consumer surplus and producer surplus are also defined. The document goes on to describe an activity called "The Pearl Exchange" where students simulate negotiating and trading pearls to experience voluntary exchange and surplus firsthand. Supply and demand analysis is also briefly introduced.

1. Voluntary Exchange
Michael Alonzo
(This file is from ACDC Econ Concepts)

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

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

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

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

6. Example of Voluntary Exchange
You want to buy a laptop so you go to the local dealership.
You are willing to spend up to P20,000 for a new laptop.
The seller is willing to sell this laptop for no less than
P15,000.
After some negotiation you buy the laptop for P18,000.
Analysis:
Buyer’ Maximum-
Sellers Minimum-
Price-
Consumer’s Surplus-
Producer’s Surplus-
P20,000
P15,000
P18,000
P2,000
P3,000

7. 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 the
product for.
PS = Price – Seller’s Minimum
Voluntary Exchange Terms

8. 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.

9. 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!

10. 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)?

11. Qo
P
11
S
Round 3: Supply of pearls decreased
when Oysters died because of the virus.
Why? At the
original PE
there is a
shortage
so prices
increased
D
QE
PE
P1
Q1
S1

12. Voluntary Exchange Activity

13. Qo
P
13
D1
S
Round 4: Demand decreased as buyers left the
market to go buy a substitute product (diamonds)
Why? At the
original PE
there is a
surplus
(Qd<Qs) so
prices fell
D
QE
PE
P1
Q1