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March 23, 2019 

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HARROD-DOMAR MODEL: A model economic growth developed by R. F. Harrod and E. D. Domar that seeks to explain why an economy would not grow as fast has its potential growth rate. This model is based on the notion that actual income determines the amount saving, which is determines investment, which is what affects the rate of economic growth. If saving is not enough, the potential growth rate will not be achieved. The Harrod-Domar model, developed in the 1930s, has a strong Keynesian economic flavor, both indicating that the economy does not automatically achieve its potential.

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DOUBLE COINCIDENCE OF WANTS:

The requirements of a barter exchange that each trader has want the other wants and wants what the other has. Because everyone does not necessarily want everything, the lack of double coincidence of wants is a major obstacle in barter exchanges, especially for complex, modern economies like that fond in the United States. While double coincidence of wants is also essential for exchanges involving money, it is such an inherent trait of money that it is not a problem. By its very nature as a generally accepted medium of exchange, everyone WANTS money.
Barter exchanges require a double coincidence of wants. Each trader must want what the other has and have what the other wants. If either trader falls short of satisfying this condition, then the barter exchange does not take place.

Simple is Better

The need for a double coincidence of wants limits barter trades to simple economic systems or to the fringes of modern economies. As goods become more specialized, satisfying specific and highly differentiated wants and needs, the prospects of achieving a double coincidence of wants diminishes.

For example, if Pollyanna Pumpernickel specializes in the production of a simple product like bread, she is bound to find general acceptability among other barter traders. She can easily trade her bread to others in exchange for other simple products, such as candles, clothing, or kitchen utensils.

However, should Pollyanna produce a more specialized product, such as orange and purple butterfly embossed umbrella stands, then finding another trader that satisfies the double coincidence of wants is likely to prove more difficult.

  • First, the other trader must want or need an umbrella stand, which presumes the ownership of at least one umbrella.

  • Second, the other trader must like the colors orange and purple, and especially the combination of both colors.

  • Third, the other trade must enjoy having an umbrella stand embossed with butterflies.
In addition, a potential trade must also have a product that Pollyanna wants or needs. If others produce similarly specialized goods, then Pollyanna might find that the ONE person willing to trade for her orange and purple butterfly embossed umbrella stand has nothing that she wants.

As such, when products become increasingly complex, designed to satisfy specialized wants and needs, double coincidence of wants and barter exchanges are less likely to prevail.

Seeking Trades

Achieving a double coincidence of wants can prove to be a daunting exercise. Consider this barterific example to illustrate. Suppose that Duncan Thurly heads into town with a basket full of hand-crafted hamster hats (not hats made FROM hamsters, but hats made FOR hamsters). Duncan seeks to trade his hamster hats for a pair of knickers (what most folks would call pants). Duncan approaches a local tailor and offers a trade of hamster hats for knickers. If the knicker-maker needs hamster hats, then Duncan is ripe for a trade. Duncan and he tailor have achieved a double coincidence of wants.

But, alas, suppose that the tailor needs human-sized shoes, not hamster-sized hats. So, Duncan heads off to the local cobbler, the shoemaker, who informs him, when he offers hamster hats in trade for wing tips, that candlesticks are the only commodity desired in his shop. This sends Duncan to the wax works in search of wick-thick candles. Unfortunately, his hamster hats are turned down by the candle maker with a suggestion that loaves of bread would meet with more transaction success for a candle exchange.

A quick trip to the bakery finds a back room full of hatless hamsters--and finally a double coincidence of wants. Duncan can trade his hamster hats for bread, which he can then trade to the candlestick maker for candles, which he can then exchange for a pair of wing tips, when gets him back to his ultimate knicker goal. Duncan was clearly unable to complete ANY barter exchange until he came upon a trading partner who shared double coincidence of wants.

Trade More, Produce Less

The problem with barter exchanges, a problem that results directly for double coincidence of wants, is the likelihood of lost product. Traders can spend a great deal of resources seeking out exchanges, which leaves fewer resources available for production. In this little example, Duncan spent the better part of the day "buying" a pair of pants. The time he spent on this endeavor kept him from fabricating additional hamster hats, to the loss of hamster owners throughout the economy.

Had this economy used money rather than barter, Duncan could have quickly sold his hamster hats, acquired his knickers, then returned home for further hamster-hat fabrication. Using money as a medium of exchange eases the exchange process, makes it more efficient, and frees resources for production.

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Recommended Citation:

DOUBLE COINCIDENCE OF WANTS, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2019. [Accessed: March 23, 2019].


Check Out These Related Terms...

     | barter | barter economy | value in use | value in exchange | commodity money | fiat money | medium of exchange |


Or For A Little Background...

     | money | money functions | money characteristics | specialization | market | satisfaction | exchange | production | efficiency |


And For Further Study...

     | fractional-reserve banking | banking | money creation | monetary policy | Federal Reserve System | money supply | money supply, aggregate demand determinant | monetary economics | Keynesian economics | aggregate market analysis | business cycles | M1 |


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