Question

What is double coincedence of wants ? Explain

Answer 1

This occurs when two people have goods they are both happy to swap in exchange. i.e. a perfect barter exchange.

If two individuals place equal value on 4 eggs and a loaf of bread. Then this exchange would be a double coincidence of wants and enable an efficient transaction.

In a barter economy (which has no money) people have to swap goods. E.g. you pay me in eggs and I teach you economics. Clearly, a barter economy has significant limitations. It requires two people to have goods they are willing to swap.

If you have eggs to sell, and I have economic lessons to offer, this would be no good because I don’t necessarily want to swap economic lessons for eggs. There is no double coincidence of wants.

However, if you had a new lightweight bicycle you were willing to swap for 10 economic lessons, I would be happy to do the deal. However, in practice, there is rarely going to be a double coincidence of wants. A barter economy becomes very limited and reduces the scope for specialisation of goods.