Chapter 25, Problem 1.1P

To determine

How cigarettes became to be and worked as money between the world war prisoners.

Explanation of Solution

The world war was a deeply impacted war between the axis powers and the allied forces. The war leads to millions of war prisoners in many jails. During the period of the world war, there were no commonly used money forms other than the gold. Amongst the prisoners, the gold was unavailable and thus a new form of money was necessary. As the prisoners were huge in number, they started the barter system between them whereas as the time passed, the barter system became unable to operate between the mass number of war prisoners.

Money is anything that a society is willing to accept as a payment for the goods and services exchanged in the market place. Thus, a new form of money emerged between the prisoners of war which were the cigarettes. The cigarettes became the unit of account for the prisoners. They started to trade their items for cigarettes so that the issues with the barter system became solved. The prisoners were provided cigarettes on a ration by the detaining forces as well as the Red Cross volunteers which ensured the supply to them and the prices of the exchanges between the prison markets became set in terms of the number of cigarettes instead of dollars or any other currencies.

Economics Concept Introduction

Concept introduction:

Money: Money is anything that the society accepts as a payment for the goods and services exchanged in the market. It can be of the form of currencies, coins or any other items that the society is willing to accept in exchange.

Barter system: The barter system was a system of exchange of goods and services in the society where the goods and services were exchanged for other goods and services. Thus there were needs of double coincidence of needs in the market.