Answer to Question #119006 in Macroeconomics for Aynul

Question

Suppose you are all in a Barter Economy. Explain Say’s Law in the context of this Barter Economy (of course using a model example). Now suppose all of you have transitioned to a Monetary System economy. Now explain how Say’s Law holds (from the Classical Economist perspective) and of course continuing from the previous example.

Answer 1

In a Barter Economy there isn't unique exchange goods like money. In this type of economy you exchange goods for each other directly. For example, Bob has a cow and he wants boards for repair his home. Kate has boards and she wants cow. They met each other and traded. They had decision that one cow costs 2 tons of boards. Bob need 1 ton but it is low price for a cow. If Kate wants boat and not cow Bob needs to find somebody else who has boards and wants cow or somebody who has boat and wants cow. When this economy becomes monetary system Bob does not need find person which whats cow and has what he needs. Bob can sell his cow to everyone who gives the best price. Ecomomic mobility has grown.