How does a competitive exchange differ from a two-person model of exchange?
A)The Pareto criterion is satisfied only in a competitive exchange and not in a two-person exchange.
B)In two-person exchanges,the exact outcome of bargaining cannot be predicted unlike with a competitive exchange.
C)The outcomes of two-person exchanges tend to be more equitable than competitive exchanges.
D)In two-person exchanges consumers are price-takers while competitive exchange involves price-makers.

Question

Quizplus · Accepted Answer

In a competitive exchange, there are multiple parties involved and the outcome is determined by supply and demand. In a two-person model of exchange, the outcome is negotiated between two individuals, and the exact outcome cannot be predicted. Therefore, option B is the correct answer. Option A is not true because the Pareto criterion can be satisfied in both competitive and two-person exchange. Option C is not necessarily true, as the equity of outcomes depends on the negotiation skills and power dynamics of the individuals involved. Option D is not relevant as both competitive and two-person exchanges involve price determination.

How Does a Competitive Exchange Differ from a Two-Person Model