Imagine that you are a farmer and that people use a barter system where you live. You need a whole variety of things—a pair of new shoes, a sweater, and medicines for your grandmother. But you only have an ox that you can spare. How would you be able to exchange the ox for all the different things you need from different people or places? What difficulties are you likely to face?
As a farmer with only an ox to trade, I would face significant difficulties under the barter system.
I would need to find someone who wants an ox and is willing to give me something I can trade further. I might exchange the ox for several bags of wheat, then carry the wheat to different places—to one person for shoes, another for a sweater, and another for medicines.
The difficulties include:
(1) Finding someone who needs an ox (double coincidence of wants)
(2) Unfair exchange—swapping an ox for just shoes would not be equal in value
(3) Transporting heavy wheat bags to multiple locations
(4) Negotiating fair proportions for each exchange
(5) Storing leftover wheat safely without it rotting or being eaten by pests
(6) Carrying wheat for future exchanges
Explanation
The chapter presents this scenario on Page 3 to illustrate the problems of the barter system. It explains: 'For one, you would have to find someone who needed an ox. Now, swapping your ox for a pair of shoes would hardly be a fair exchange! You may have had to go through a series of exchanges—for example, find someone to exchange your ox for several bags of wheat. You would then have to transport all that wheat to several places.'
Solution Steps
Find someone who needs an ox and is willing to trade something that can be exchanged further
Exchange the ox for several bags of wheat which can be divided for multiple trades
Carry wheat to different traders to obtain shoes, sweater, and medicines
Challenge: Double coincidence of wants - finding a person who needs an ox
Challenge: Unfair exchange due to unequal value between an ox and smaller items
Challenge: Transportation of heavy wheat bags to multiple locations
Challenge: Negotiating fair proportions for each individual exchange
Challenge: Safe storage of leftover wheat without spoilage or pest damage
Challenge: Portability issues when carrying wheat for future exchanges