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Econ: What is the Double Coincidence of Wants? 89 Views


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Description:

What is the Double Coincidence of Wants? When currency becomes unacceptable as a transaction tool of value, societies often resort to barter, as in the case of Venezuela and previously, in Greece. The problem is often in negotiating an equivalence in perceived value between disparate commodities and their respective quantities. The double coincidence of wants is the serendipitous event where each party has exactly what the other requires to enact and close a successful barter.

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Transcript

00:00

And finance Allah Shmoop what is the double coincidence of

00:06

wants All right well it sounds like a new R

00:09

movie from the nineteen forties Black and white evil shadowy

00:12

figures Guys who talk with marbles in their mouth You

00:15

know like that Well or maybe the manner in which

00:17

an economist would describe flirting you know right before she

00:20

grabs a supply curve of swipe right were the dates

00:24

on tinder But the term has a totally different non

00:26

romance related meaning for economists It refers to the very

00:30

limited conditions that have to exist in order for bartering

00:33

to work well in most basic terms the double coincidence

00:38

of wants describes the rare situation where two parties each

00:41

have something the other wants And both are willing to

00:45

make the exchange the perfect barter situation right Okay so

00:49

flee Bartering like this guy Different parts Bartering is when

00:53

you trade a good or a service directly for another

00:56

good or service You agreed to mow your neighbor's lawn

00:59

if well she'll bake you some of her special oatmeal

01:02

chocolate chip cookies That's barter It doesn't happen very much

01:06

in modern economies mostly because well we skip the bother

01:09

and just use money well Nowadays when you want to

01:11

buy something you typically use what's called a medium of

01:15

exchange and specifically well you use money At least in

01:17

America you do currency representing a value the worth of

01:21

which everyone generally agrees upon You go to the store

01:24

pick up a pint of double chunky Chako marshmallow fudge

01:28

ice cream You hand over the cash and the treat

01:30

is yours if you don't have cash on you or

01:33

if you're buying your double chunky Chako marshmallow fudge online

01:37

while delivered next day via drone inconvenient dry ice Amazon

01:41

packaging Well you can use some kind of cash equivalent

01:44

like a credit card or a PayPal account thing You're

01:47

venmo or apple pay or something like that The point

01:49

is you can use some sort of currency The currency

01:52

represents a medium of exchange right It is a medium

01:56

itself and you agree on the number of units of

01:59

that currents to make the exchange affair on both sides

02:02

released Acceptable It can be used in any commercial venture

02:05

because well everyone will take it instead of directly trading

02:08

goods and services that goods and services can be traded

02:10

for the medium of exchange which can then be used

02:13

to get other goods and services right It's called liquidity

02:16

Essentially its financial liquidity and dollars are trusted as a

02:20

medium of exchange so they're the most liquid currency in

02:23

the country Well that's how things work in the modern

02:25

economy Anyway You trade some medium of exchange that is

02:28

you use money to buy what you need Okay so

02:30

a bunch of aliens appear out of nowhere They blast

02:33

the earth with nuclear destruct O raise jazz for target

02:36

practice Thanks guys Then they fly off to blow up

02:39

some stuff nearer Alfa Centauri Yeah Most of the world's

02:42

destroyed civilization has fallen apart People wander the destruct O

02:46

scarred wasteland in small warring bands There are no more

02:50

Treasury Department's No more central banks no more paper towels

02:53

no more credit cards or Apple pays no more money

02:56

at all No medium of exchange whatsoever If the roving

03:00

post apocalyptic tribes wanna trade for something well they need

03:04

barter Here's where that double coincidence of wants then comes

03:08

into play right It's a coincidental that both sides double

03:12

of them want the same thing If you want a

03:15

pint of double chunky chocolate marshmallow fudge Well you can't

03:18

just stroll down to the store and pick it up

03:20

Instead you first have to find someone who will dwell

03:23

among the starving remnants of humankind Still makes premium specialty

03:27

ice cream That search represents the first want in the

03:31

double coincidence of wants You want the double chunky chako

03:35

marshmallow fudge You find someone who keeps alive the nearly

03:39

forgotten art of double chunky production But to get it

03:42

from them you have to have something they want That's

03:44

the second one In the double coincidence of once you

03:48

need to have something that they want at the same

03:50

time that they have something that you want You getting

03:53

all this Well all you have are a couple of

03:55

knives Cem tattered rags and a few pieces of dried

03:58

rat Well to get the ice cream the other guy

04:00

had better want a knife set Born up close aren't

04:03

nearly inedible chunks of salted vermin Otherwise no deal no

04:07

barter Nothing happens well to barter than each party has

04:10

to have something the everyone wants That's a double coincidence

04:12

of wants There has to be a coincidence of both

04:14

people wanting something that the other person has at that

04:17

time But it makes bartering inefficient That hold double coincidence

04:20

thing is rare a lot rarer than when people have

04:23

the amount of dollar bills in their pockets to just

04:25

go buy stuff Using a medium of exchange works much

04:27

better because you don't need to actually find someone who

04:30

wants what you have to offer like that physical good

04:32

You just trade what you have for money and then

04:35

they use that money to get what they want So

04:38

you teach people to speak Albanian You want some Chinese

04:41

food for dinner In the barter system you have to

04:43

find someone who makes Chinese food and who also would

04:46

like to learn Albanian Yeah double coincidence of wants or

04:49

you have to go through a complicated series of transactions

04:52

to get what you want You teach Albanian to a

04:54

person who makes key chains They give you some key

04:56

chains for your trouble You trade a few key chains

04:59

to someone who owns an orchard for a few bags

05:01

of apples You then take those apples to the Chinese

05:04

restaurant for a plate of chow mein You have to

05:06

spend all day figuring out a series of transactions that

05:09

gets you from Albanian lessons to Chinese dinner Money cuts

05:12

through this process you don't need the double coincidence of

05:15

wants for transactions that happened Just one want at a

05:18

time plus some cash at least until the trigger Happy 00:05:21.713 --> [endTime] space travelers show up Roman Everything's over Yeah

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