Question 10 / 96:
Suppose the economy has only four goods: apples, oranges, bananas, and grapes.In barter, how many independent price ratios would exist? (E.g., the apple:orange ratio would not be independent of the orange:apple ratio.)
There are 4x3=12 different pairs of goods, but only 6 if the order
is unimportant. So in a barter economy with four goods, traders
would need to keep track of 6 different price ratios. Specifically,
they are: apples:oranges, apples:bananas, apples:grapes,
oranges:bananas, oranges:grapes, and bananas:grapes. (If you
know that 1 apple trades for 2 bananas, then you automatically
know that 1 banana trades for half an apple. That's why you
only need to keep track of 6 total exchange ratios in this small
economy.)
