(I) When individuals engage in a voluntary exchange, both parties are made better off. (II) By channeling goods and resources to those who value them most, trade creates value and increases the wealth created by a society's resources.
A) I is true; II is false.
B) I is false; II is true.
C) Both I and II are true.
D) Both I and II are false.

Question

Quizplus · Accepted Answer

Both statements are true. The first statement is a basic principle of microeconomics, known as the "mutual benefit principle," which states that both parties in a voluntary exchange must benefit, otherwise, the exchange would not occur. The second statement reflects the concept of the "invisible hand," introduced by Adam Smith, which suggests that individuals pursuing their own self-interest in a competitive market will result in a more efficient allocation of goods and resources, creating value and increasing overall wealth in society.

(I) When Individuals Engage in a Voluntary Exchange, Both Parties