Part 1In prison, cigarettes are sometimes used among inmates as a form of payment. All of the following explain how cigarettes solve the "double coincidence of wants" problem, even if a prisoner does not smoke, except: A. cigarettes serve as a medium of exchange. B. prisoners can exchange cigarettes for other goods and services. C. exchanging cigarettes for other goods and services increases transaction costs. D. cigarettes are widely accepted as a form of payment in prison.

Question

Part 1In​ prison, cigarettes are sometimes used among inmates as a form of payment. All of the following explain how cigarettes solve the​ "double coincidence of​ wants" problem, even if a prisoner does not​ smoke, except​: A. cigarettes serve as a medium of exchange. B. prisoners can exchange cigarettes for other goods and services. C. exchanging cigarettes for other goods and services increases transaction costs. D. cigarettes are widely accepted as a form of payment in prison.

BlackTom AI · Accepted Answer

The question asks about how cigarettes solve the double coincidence of wants in a prison economy, and asks for the option that does NOT explain this.
Option A: 'cigarettes serve as a medium of exchange.' This is a classic feature of money-like goods: they are accepted in trade and can stand in for a wide range of goods and services, thus bridging the mismatch in wants between barter partners.
Option B: 'prisoners can exchange cigarettes for other goods and services.' This shows cigarettes functioning as a commodity that can be traded for various needs, aiding mutual gains from trade even if the seller does not want what the buyer has—an essential element of a workable medium of exchange.
Option C: 'exchanging cigarettes for other goods and services increases transaction costs.' This statement is the outlier. If cigarettes were effective as a medium of exchange, costs would be lower due to standardized, accepted payments and reduced search and bargaining frictions. Saying it increases transaction costs contradicts the role of money in reducing costs, so it does not explain how cigarettes solve the problem.
Option D: 'cigarettes are widely accepted as a form of payment in prison.' Widespread acceptance underpins the efficiency of a medium of exchange, enabling quick trades and reducing the need to find someone who wants exactly what you have. This supports solving the double coincidence of wants.
In sum, A, B, and D describe mechanisms by which cigarettes facilitate trade and overcome the double coincidence of wants, while C identifies the opposite effect (higher costs), which is not how such a system would solve the problem.

Homework:Chapter 3 Homework

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