You visit a tropical island that has only four goods in its economy – oranges, pineapples, coconuts and bananas. There is no money in this economy.
a. Draw a grid showing all the prices for this economy. (You should check your answer using the n(n-1)/2 formula where n is the number of goods.)
b. An islander suggests designating oranges as the means of payment and unit of account for the economy. How many prices would there be if her suggestion were followed?
c. Do you think the change suggested in part b is worth implementing? Why or why not?