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Chapter 3: Q.2 (page 110)

In prison, cigarettes are sometimes used among inmates as a form of payment. How is it possible for cigarettes to solve the “double coincidence of wants” problem, even if a prisoner does not smoke?

Short Answer

Expert verified

Smokes satisfy the double coincidence of wants in that both parties to a trade are in need of cigarettes either for consumption or for further trade.

Step by step solution

01

Step 1. Introduction

Double coincidence of wants refers to the requirement that both parties should agree to accept the item the other one is offering at the same time.

02

Step 2. Explanation

Even if he or she is a non-smoker, if the prisoner learns that others in the prison will accept cigarettes as payment, they will be willing to accept cigarettes as payment as well. Rather than forcing convicts to barter and trade favors, cigarettes meet the double coincidence of demands by allowing both parties to a trade to "buy" products or services with them.

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Most popular questions from this chapter

Three goods are produced in an economy by three individuals: Good Producer Apples Orchard owner Bananas Banana grower Chocolate Chocolatier If the orchard owner likes only bananas, the banana grower likes only chocolate, and the chocolatier likes only apples, will any trade between these three persons take place in a barter economy? How will introducing money into the economy benefit these three producers?

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It is not unusual to find a business that displays a sign saying “no personal checks, please.” On the basis of this observation, comment on the relative degree of liquidity of a checking account versus currency

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