Posted on: January 29th, 2010
http://9humanities.wordpress.com/2010/01/29/some-basics-of-economics/

Let’s say you’re a farmer in the ancient Levant, and you want meat. The guy living just down the river is a hunter, and he wants vegetables. What do you do? You barter! You bring your vegetables, your neighbor brings his meat. You two come to an agreement about how many vegetables are worth how much meat. If meat is plentiful but vegetables are not, you’ll probably walk away with “more” than he will. But if meat is rare, he can ask for more vegetables. Once you’re both satisfied, you head home.

One day, you show up at his door with vegetables. However, it turns out he’s got plenty and doesn’t want any. You still want some delicious meat. He tells you that he could use new tips for his arrows. The local weaponmaker wants vegetables. You see a solution. You trade your vegetables to the weaponmaker for arrowheads. You then trade those arrowheads for meat. Everyone’s happy.

Of course, what happens if the weaponmaker wants meat? You’re left out of the trade. This isn’t unfair. Your goods aren’t worth anything to those two at the moment. So you either live off your vegetables, change from agriculture to another lifestyle, or find someone else to trade with.

Fortunately, vegetables, meat, and basic technology rarely become unwanted. So at many, many points through human history (even today! not just in ancient times!) bartering works.

How can you decide how much something is worth? It depends on the desires of the person involved in the trade.