Consider a fiat money/barter system like that portrayed in this chapter. Suppose the number of goods J

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Consider a fiat money/barter system like that portrayed in this chapter. Suppose the number of goods J is 100. Each search for a trading partner costs a person 2 units of utility.
a. What is the probability that a given random encounter between people of separate islands will result in a successful barter?
b. What are the average lifetime search costs for a person who relies strictly on barter?
c. What are the average lifetime search costs for a person who uses money to make exchanges? Now let us consider exchange costs. Suppose it costs 4 units of utility to verify the quality of goods accepted in exchange and 1 unit of utility to verify that money accepted in exchange is not counterfeit.
d. What are the total exchange costs of someone utilizing barter?
e. What are the total exchange costs of someone utilizing money?

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a b c Lifetime search costs are much higher with barter d The person has to make one exchange wh...View the full answer

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Modeling Monetary Economies

ISBN: 978-1107145221

4th Edition

Authors: Bruce Champ, Scott Freeman, Joseph Haslag

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Question Posted: Nov 19, 2018 04:53 AM

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Consider a fiat money/barter system like that portrayed in this chapter. Suppose the number of goods J

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a b c Lifetime search costs are much higher with barter d The person has to make one exchange wh...View the full answer

Modeling Monetary Economies

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