There are three goods produced in an economy by three individuals: Good Producer Hand Sanitizer Rabiatu...

There are three goods produced in an economy by three individuals:
Good Producer
Hand Sanitizer Rabiatu
Face Mask Mariya
Veronica Bucket Zina

If Rabiatu likes only face mask, Mariya likes only veronica buckets and Zina likes only hand sanitizer, will any trade take place between these three persons in barter economy? How will introducing money into the economy benefit these three persons

Expert Solution

Answer - As Rabiatu likes only face mask but Maria is not interested in hand sanitizer produced by Rabiatu so direct barter is not possible between them and this condition applies to three of them as their product of interest and the product produced by them are not available for direct barter and the only way for them to carry out indirect barter which will be a very tedious process for example in case of indirect barter Rabiatu will exchange hand sanitizer with Veronica and will take Bucket Zina from her after which he will exchange Veronica Bucket with Zina and will take Face Mask from her.

Introducing money in the economy will help in following ways to Rabiatu, Maria, and Zina.

There will be no double coincidence of wants required like the scenario happening in the above as in case of double coincidence of wants for the exchange to take place. Three of them can sell goods for money to whosoever is interested in it and through this money, they can purchase goods from whosoever is producing and selling them. So Rabiatu can purchase directly purchase face mask from Maria using money and Maria can directly pay Zina through money and purchase Veronica Bucket and using this money later on Zina can purchase Hand Sanitizer from Rabiatu.

Rahul Sunny answered 7 months ago

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