spot+exchange

Jason Strachman This information was acquired from //Managerial Economics and Business Strategy// by Michael R. Baye page 206 and pages 212-213. This is your typical purchasing of consumer goods. When you go to the grocery store to buy a gallon of milk, you are not required to meet any special terms or make any specialized investments to buy the gallon of milk. You pay the cashier for the milk and you go on your separate ways. That is spot exchange. Spot exchange can be a service too. When you go to a car wash, you pay the company money, you drive through the car wash and then you go your separate way. That is a service that is spot exchange.
 * Spot exchange** an informal relationship between a buyer and seller in which neither party is obligated to adhere to specific terms for exchange. The buyer and seller are basically anonymous and there is not a legal relationship between the buyer and seller.

The key advantage with spot exchange is that firm gets to specialize in doing what it does best -- producing the final product once it receives the inputs. Spot exchange is often used when the inputs are standardized -- you can purchase the input from many suppliers and the quality will be the same regardless of the supplier. The milk example shows this. There are many places that you can buy a gallon of milk. The quality of the milk is the same regardless if you buy it from Marsh, Kroger, or Walmart. Since the input is standardized and there are many suppliers in the market, the price is the equilbrium point where Supply and Demand intersect. If a supplier charged more than the market price, the buyer would decline the price and purchase it from another supplier.

__Question 1:__ True or False -- spot exchange requires lots of legal negotiation between the parties before acquiring the input? __Question 2:__ Which is an example of spot exchange? A. Computers R Us is legally obligated to purchase 300 computer chips year year for three years. B. Computers R Us purchased 300 computer chips from a company that ran advertised in the back of a magazine. C. Computers R Us decides to manufacturer the computer chips in addition to the final product.
 * Answer is False**
 * Answer is B**