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

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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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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
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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
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ice cream You hand over the cash and the treat
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is yours if you don't have cash on you or
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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
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released Acceptable It can be used in any commercial venture
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because well everyone will take it instead of directly trading
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goods and services that goods and services can be traded
02:10
for the medium of exchange which can then be used
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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
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destroyed civilization has fallen apart People wander the destruct O
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scarred wasteland in small warring bands There are no more
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Treasury Department's No more central banks no more paper towels
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no more credit cards or Apple pays no more money
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at all No medium of exchange whatsoever If the roving
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post apocalyptic tribes wanna trade for something well they need
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barter Here's where that double coincidence of wants then comes
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into play right It's a coincidental that both sides double
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of them want the same thing If you want a
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pint of double chunky chocolate marshmallow fudge Well you can't
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just stroll down to the store and pick it up
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Instead you first have to find someone who will dwell
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among the starving remnants of humankind Still makes premium specialty
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ice cream That search represents the first want in the
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double coincidence of wants You want the double chunky chako
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marshmallow fudge You find someone who keeps alive the nearly
03:39
forgotten art of double chunky production But to get it
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from them you have to have something they want That's
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the second one In the double coincidence of once you
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need to have something that they want at the same
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time that they have something that you want You getting
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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
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nearly inedible chunks of salted vermin Otherwise no deal no
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barter Nothing happens well to barter than each party has
04:10
to have something the everyone wants That's a double coincidence
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of wants There has to be a coincidence of both
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people wanting something that the other person has at that
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time But it makes bartering inefficient That hold double coincidence
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thing is rare a lot rarer than when people have
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the amount of dollar bills in their pockets to just
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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
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You just trade what you have for money and then
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they use that money to get what they want So
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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
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like to learn Albanian Yeah double coincidence of wants or
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you have to go through a complicated series of transactions
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to get what you want You teach Albanian to a
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person who makes key chains They give you some key
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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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