The fallacy of composition is the erroneous view that an economic activity can sometimes exceed the sum of its components. When economists use the term ceteris paribus, they indicate that the causal relationship between two economic variables cannot be determined. Exchange creates value by permitting trading partners to expand total output as the result of specialization in areas where they have a comparative advantage, the result of division of labor, and the result of adoption of mass production processes. Exchange creates value by moving goods from parties who value the goods less to parties who value the goods more. Both b and c are true.
Middlemen add to the expenses of buyers without providing a benefit to sellers.
Our economy would work just as well without middlemen since they do not expand the availability of physical goods. Middlemen reduce the number of transactions since they increase the buyer's price and reduce the seller's net receipts. Middlemen create value by arranging trades and providing information to buyers and sellers. A nation with cheap, efficient communications is likely to be richer, ceteris paribus, because transaction costs will be lower and trade greater. When private ownership of a resource is clearly defined and enforced, the private owner has a strong incentive to consider the wishes of others when deciding how to employ the resource.