theory of exchange

Manish Padhi

Theory of exchange

1.      Exchange undertaken for maximising satisfaction.

2.      Exchange is possible if economising men

A)     Recognise the situation

B)     Have the power to actually perform the transfer of good

Benefits of mutual transfer depends on 3 conditions-

1)      One economising individual must have command of quantities of goods which have a smaller value than other quantities of goods at the disposal of another economising individual who evaluates the goods in reverse fashion.

2)      The two economizing individuals must have recognized like the relationship.

3)      Must have the power to actually perform the exchange of good.

Limits of exchange-

When one of the two bargainers has no further quantity of goods which is of less value to him than quantity of another good at the disposal of the second bargainer, who all the same time evaluates the gods inversely.

Exchange of goods-

1)      Individuals are separated in space.

2)      Gains occur to both the parties

Exchange involves sacrifice and is productive