Question

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?

Short answer

As a result, the need for a double twist of fate of wants is abolished, and everyone benefits because all three manufacturers can now eat what they prefer.

Step-by-step solution

Step 1. Introduction

A barter economy is an economic system in which a medium of exchange is not present. In this system, goods and services are exchanged for each other instead of using some medium.

Step 2. Explanation

The orchard owner prefers bananas to apples and the banana grower prefers bananas to apples, the banana grower will not accept apples in exchange for his bananas, and they will not trade. Same as chocolatier will not trade with Banana owner as they don't like bananas and Orchard owner will not trade with chocolatier because they don't link chocolate. The trade here will not take place as there is no double coincidence of wants.

Hence, when money is introduced in the economy the owners can use money to buy commodity from one another instead of exchanging one for another. In such a situation trade will get established and manufacturer will buy whatever they wish for.