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True or False: The reason that the existence of money increases efficency in the...

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lilylee | Student, College Freshman | Salutatorian

Posted July 2, 2013 at 1:22 PM via web

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True or False: The reason that the existence of money increases efficency in the economy is that it allows society to avoid the double coincidence of wants and therefore allows people to specialize in what they do best.

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted July 2, 2013 at 1:38 PM (Answer #1)

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This statement is true unless your instructor is being very technical about the use of the word “the.”  Avoiding the double coincidence of wants is definitely A major reason why money makes an economy more efficient.  However, it is not THE only reason.  If we take the initial “the” to mean that there can be no other reason, this statement is false. If, on the other hand, you are merely being asked whether money really does allow us to avoid the need for double coincidence of wants, this statement is true.

If there is no money, people must barter for things they want or need.  Double coincidence of wants is necessary in order for barter to occur.  Imagine that I have an extra pig and you have painted a beautiful picture.  In order for us to trade, I must want the picture and you must want the pig.  This double coincidence will not always happen, thus making it hard to trade.  But if I can sell my pig for money, I can then use money to buy your painting regardless of whether you wanted a pig.  This is more efficient.

There are, however, other reasons why money is more efficient.  One of them is that it is easier to transport than many things.  If I am a pig farmer and I want to go on vacation, it is a lot easier for me to sell some pigs and bring the money with me on vacation than it is for me to haul a bunch of pigs around to use to barter.

Thus, this statement may be true or false depending on how literally your instructor is using the word “the” at the beginning of the statement.

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