Elucidate what is meant by double coincidence of wants

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Reference no: EM1355355

Agro is a simple economy. All economic agents own land which they can devote to farming. Farms in Agro produce only three commodities: wheat, cattle and arugula.

Farms in Agro are varied in their characteristics, and farmers are varied in their skills. As a result, each farmer is endowed with a different production technology. This means that the relative quantities of wheat, arugula and cattle produced will vary across farms.

In addition, farmers are able to devote some of their time to various services: milling wheat into flour, baking bread, tossing salads, butchering cattle and making roast beef and arugula sandwiches. Again, the varied production technologies of the various farmers will imply that any two farmers are likely to choose completely different ways to allocate their time between farming and these other activities.

In this economy the following commodities will potentially be traded: farm land, wheat, cattle, arugula, beef, flour, bread, salad and roast-beef-and-arugula sandwiches.

(a) Elucidate what is meant by "double coincidence of wants, and why it poses an impediment to efficient trade in a barter economy.

(b) Choose three of the traded commodities and discuss the merits of each as a potential form of "commodity money." Be sure to address how each would fare filling the three roles of money discussed in class: as a store of value, as a unit of account and as a medium of exchange. Which of the commodities would you anticipate would be embraced as commodity money? Explain why.

Reference no: EM1355355

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