Exchange creates value by permitting trading partners to expand total output as the result of specialization in areas where they have a comparative advantage and through division of labor and the adoption of mass production processes. Exchange creates value by moving goods from parties who value them less to parties who value them more. Both b and c are true. The employment agency is a good example of a middleman. Exchange generally moves a good from a person who values it more to a person who values it less.
Transaction costs reduce our ability to gain from potentially advantageous trades.
Middlemen increase transaction costs and thereby reduce the potential gains derived from trade. Physical goods have value that is unrelated to time and the person of ownership. When private ownership of a resource is clearly defined and enforced, the private owner has little incentive to consider the wishes of others when deciding how to employ the resource. All of the above are correct. Answer questions 18 through 21 using Figure 1.