There are four goods produced in an economy by four individuals: Good Producer A

Question

There are four goods produced in an economy by four individuals:
Good                 Producer

Apples              Orchard Owner

Bread                Baker

Shoes                Cobbler

                              100 Apples = 1 Pair of Shoes

                              15 Apples = 1 Loaf of Bread

This problem is an exercise that covers the challenges of a barter economy in a 3 product environment. What would be the production and exchange process be that would result in the Orchard Owner owning two pairs of shoes and 7 loafs of bread. If the Orchard Owner was able to produce these apples, what would the outcome be for the Cobbler and the Baker?

If a Hat maker entered the market and 1 Pair of Shoes = 2 Hats, how many apples would need to be produced to insure that all producers had at least one hat?

Explanation / Answer

1) For orchard owner to get 2 pairs if shoes he needs to produce 200 apples. To get 7 loafs of bread, he needs to produce (15*7) = 105 apples. The cobler would get 200 apples in return while the baker would get 105 apples.

2) The exchange value of 1 hat is 0.5pair of shoes. For orchard owner to get half pair of shoes he needs 50 apples which in turn will fetch him one hat. The orchard owner will profuce 50 more apples to get one hat to be given to the baker. The baker will require to exchange his bread for apples and then get shoes by giving the apples to the cobler to get the shoes. After getting the shoes he could get a hat from the hat maker for the shoes he has. The baker will exchange 3.4 shoes to get 51 apples, which he would give to the cobler to get half a pair of shoe and this would ferch him one hat. Thus total apple production is 100 units.

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