Casestudy 14.2 : The Hassle of small change
Q1.In countries where the monetary system has broken down, what are somealternatives to which people have resorted to carry out exchange?
Incountries where monetary system has broken down, they have opted forother alternative for money. For instance, Gold has been used as analternative for money for a long time. In most countries, gold coinsare the smallest unit of currency acceptable for exchange ofcommodities. Gold has all the six properties of ideal money thatare, portability, durability, divisibility, uniformity,acceptability, and non-counterfeit ability. In addition, countriesthat experience hyperinflation, people have resorted to use of barteras a currency (McEachern,2012).In the case where money is scarce, some sellers print vouchers thatare redeemable for goods and services. They also circulate thesevouchers as a currency. However, barter usage need record keepingwhile calculating the amount a buyer owe the seller. Therefore,barter is the best alternative for money where it is scarce.
Casestudy 14.1: Mackerel Economics in Federal Prisons
Q1.How well do pouches of mackerel satisfy the six properties of idealmoney (durable, portable, uniform quality, low opportunity cost,stable value)?
Pouchesof mackerel have all the six properties of ideal money hence, can beused as a medium of exchange. First, it is durable because it hascapability to maintain its quality for a long time, and it does notwear out. Secondly, it is portable and it is easy to carry it fromone point to another. Further, in is also divisible into smallerunits because it is commonly packed into small tins. DifferentPouches of mackerel have uniform quality (McEachern,2012).It is difficult to hoard the best or reduce its quality. In addition,Pouches of mackerel has low opportunity cost due its few ingredients.Lastly, Pouches of mackerel has a stable value. In prison, mostprisoners were willing to accept and use it as a form of currency.They also believed that it would retain its value for a long period,and issuing authority only supplied it.
McEachern,W. A. (2012). ECON Macro 3 (3rd ed.). Mason, OH: South-Western.