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Chapter 14: Problem 9

What is the double-coincidence of wants?

Short Answer

Expert verified
The double coincidence of wants refers to a situation where two individuals each possess a good or service desired by the other, enabling them to engage in a mutually beneficial exchange without using money or currency. It is crucial in bartering systems, where goods and services are exchanged directly without monetary intermediaries. For example, if Person A has apples and desires bread, and Person B has bread and desires apples, they can directly exchange their goods, satisfying the double coincidence of wants.

Step by step solution

01

Definition

The double coincidence of wants is an economic term referring to a situation where two individuals each have a good or service that the other wants, making it possible for them to engage in a mutually beneficial exchange without the need for money or currency. It is a key concept in bartering systems, where goods and services are exchanged directly without the use of money as a medium of exchange.
02

Example

For instance, let's imagine two people - Person A and Person B. Person A has a bag of apples, and Person B has a loaf of bread. If Person A desires bread and Person B desires apples, they can directly exchange their goods with each other without the need for any intermediary currency. This satisfies the double coincidence of wants, as both parties have what the other party wants. If this were not the case, they would have to involve other parties or use a currency to facilitate the exchange.

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Most popular questions from this chapter

Humongous Bank is the only bank in the economy. The people in this economy have \(\$ 20\) million in money, and they deposit all their money in Humongous Bank. a. Humongous Bank decides on a policy of holding 100\% reserves. Draw a T-account for the bank. b. Humongous Bank is required to hold \(5 \%\) of its existing \(\$ 20\) million as reserves, and to loan out the rest. Draw a T-account for the bank after it has made its first round of loans. c. Assume that Humongous bank is part of a multibank system. How much will money supply increase with that original \(\$ 19\) million loan?

Explain the difference between how you would characterize bank deposits and loans as assets and liabilities on your own personal balance sheet and how a bank would characterize deposits and loans as assets and liabilities on its balance sheet.

What components of money do we count in M2?

Explain why you think the Federal Reserve Bank tracks M1 and M2.

What are the four functions that money serves?
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