In a barter economy, a skilled doctor wants to pay a carpenter to repair her roof. The carpenter, however, is perfectly healthy and needs no medical services.
(i) Explain the exact difficulty the doctor faces in completing this exchange under barter.
(ii) A student argues: "This problem disappears the moment the doctor is paid in money, even if the carpenter still doesn't want medical services." Do you agree? Justify your answer by explaining what property of money makes this possible.
Generated by claude-sonnet-4-6 · 2026-06-26 13:23 · grounding rag
Model Answer
(i) The doctor faces the problem of double coincidence of wants. In a barter system, exchange requires that both parties want exactly what the other offers. The carpenter has no need for medical services, so despite the doctor needing repairs, no exchange can take place. This makes barter highly inconvenient.
(ii) Yes, I agree. When the doctor is paid in money, she can offer the carpenter money — not medical services. Money acts as a medium of exchange, eliminating the need for double coincidence of wants. The carpenter accepts money because he can use it to buy anything he needs. Thus, both parties benefit without needing matching wants.
Source: Chapter 3 — Money and Credit, Medium of Exchange
---
Explanation
- (i) centres on the term "double coincidence of wants" — use it explicitly; examiners award marks for this term.
- (ii) The key property to name is "medium of exchange". Explain why it works: money is universally accepted, so the carpenter doesn't need the doctor's services — he accepts money and spends it elsewhere. The student's argument is correct; your job is to justify it with the concept.
- Keep definitions textbook-close; avoid vague phrases like "money is useful."