All of this answer is for same-screen co-op. Online play is different. I have leveled two characters in coop from 1-8 with simultaneous level ups. Nothing special was done except that +xp gear was kept equal between them. I've also observed 3-player co-op with similar results.
Is exp divided evenly each time an enemy is killed?
Yes. If the players are equal level it's definitely even. There may be a little catch-up distribution in the case of non-equal levels.
If not, does the player who dealt the killing blow gain more experience? Is experience gain in any way related to the amount of damage dealt? Do I get exp for every monster killed by the party or only for the one I hit at least once?
No, No, and every monster killed by the party. Bonus rewards (such as Massacre from a kill chain) and Quests, also shared by the party.
Do I still get exp while dead (and waiting to be revived)?
I don't know this one - hopefully it doesn't come up much.
Do I get experience from special finds (i.e. books, scrolls, etc.) or does it only go to the character who activated the item?
Shared by the party. I have seen two characters level up at the same time when one picks up a book.
Is quest exp shared evenly among party members, or is there a way to get more exp than the others from a quest?
Shared evenly. Although it may be level adjusted.
Do items that increase exp gain only affect myself or also the other party members?
This is it, this is the only thing in the list that is personal. If you wear more +xp gear than your buddies, you will get more xp.
Money and loot for starters are individual.
Item loot is individual. Money is shared by copying. If one player picks up 10 gold, every player will glow and get 10 gold.
Best Answer
It's sold by a merchant who is Accessible after the quest where you save Deckard Cain. He is right behind the tavern.
It's the one the red arrow is pointing at not the Gem
As Alok has mentioned in the comments, there are also two randomly spawning merchants in Act I.
The first one is The Wandering Tinker which spawns Here:
And the second one is Rodger The Alchemist who can be found here: