Question

Labor and and voluntarily exchanged between "household" sellers and "firm" buyers is best classified as a:

a- product market

b- factor market

c- rental market

d- system of reciprocity

Answer 1

d - system of reciprocity

Reciprocity is when a person does something to or for another person with the understanding that this act is likely to be reciprocated (often indirectly) in the future.

An example would be this morning when I was approaching the entrance to my office carrying a bag and a cup of coffee. An exiting stranger paused a moment to hold open the door for me so I could get in without my having to fumble for my key tag with both hands occupied.

In a like manner, I, without a second thought, will provide the same type of favor to any stranger I encounter the next time a similar situation arises.

Negative reciprocity, it should also be said, exists as well and it serves to discourage one person from harming another.

But fortunately, most reciprocity is positive—it creates a benefit to the recipient that typically exceeds the small cost to the giver. The giver does not immediately benefit from this exchange but with reciprocity, he can expect to be repaid with benefits in the future so he too gains in the long run. These simple exchanges add up and create enormous net benefits for all to enjoy. Reciprocity forms the foundation of human sociality.