Consider two barter economies: Duos and Varietas. Duos produces two different goods, whereas Varietas produces 80 different goods. Both countries have the same number of people. In which barter economy is it more likely that the means of payment and the units of account would be efficient? How many relative prices are there in Duos compared with Varietas? Which economy would benefit more from adopting money?
What will be an ideal response?
Payments would be far easier and efficient in Duos. With fewer goods to be traded, the likelihood of reaching a double coincidence of wants would be greater. Also, with fewer goods being produced, the need for specialization is not as great as it would be in Varietas. With 80 different goods, people in Varietas are likely to be specialized. Also, with many different goods, the need for information is much greater in Varietas. Duos would have one relative price, 1=2(2 - 1)/2. Varietas would have thousands of relative prices: 3,160 = 80(80-1)/2. This suggests that quoting prices and recording debts would be easier in Duos. Varietas would benefit more from adopting money, for the reasons cited above.
You might also like to view...
If profits are high because the price level rose,
A) the AS curve shifts leftward. B) it is likely the result of an increase in the real wage rate. C) business failures rise and the quantity of real GDP supplied increases. D) new businesses open and the quantity of real GDP supplied increases. E) potential GDP must be decreasing.
The primary goal of economic activities is to:
A. equalize the distribution of consumer income and wealth. B. expand the production of goods and services. C. make the most efficient use of scarce productive resources. D. reallocate resources from consumption to production in the economy.
Prior to the Uruguay Round agreement, the GATT was criticized because
A) it had no mechanism for enforcing its rules. B) prominent segments of world trade, including trade in agriculture and services, were not covered by GATT rules. C) member countries could veto GATT rulings not in their interests. D) All of the above.
Stagflation is the simultaneous occurrence of inflation and high unemployment
a. True b. False Indicate whether the statement is true or false