John raises chickens. He has 4 chickens, but he wishes to eat steak.
Bill raises cows. He has 3 cows, but wishes to eat chicken.
John offers 2 chickens for 2 cows. Bill refuses as he would have 1 cow left – he needs 2 to reproduce. Bill offers 1 cow for 1 chicken.
Analysis.
In part 2 we established 1 chicken to be equal to the value of 1 cow. The result of part 3 is still 1 chicken for 1 cow. However, the saturation point of the market is also 1 chicken and the market cannot sustain a second trade of 1 chicken for 1 cow.
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December 14th, 2008
2:40 pm
….Yup….Mom