ECON 3430 Lecture Notes - Lecture 13: Fiat Money, Barter, Commodity Money
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Econ 3430 lecture 13 notes monetary exchange and exchange costs. In this pattern of trade, people undertake two searches and exchanges over their lifetime: nevertheless, average lifetime search costs may be less with monetary exchange. If there are more than three types of goods (if j > 3), average lifetime search costs are lower using money than barter: although people must trade twice when using money, average search costs are lower (if. J > 3) for a monetary exchange because people do not have to search until they find a double coincidence of wants. If goats and spears are the only two tradable commodities in a primitive village economy, it does not take very long for a goatherd to find a hungry spearmaker with whom to trade. In contrast, in a complex modern economy, it may take some time for a hungry economist to find a restaurant owner who wants a lesson in monetary economics.