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Money, Banking and Households: Question 1

Syllabus 3.1

Multiple choice 1 mark

Nabil keeps a small herd of goats and wants to buy a second-hand bicycle from Deng, who repairs and resells bikes locally. The bicycle is priced at $40. Nabil offers to swap it for one of his goats instead, but a single goat is worth roughly $200 to Deng, and cutting a live goat into a smaller piece would kill the animal and destroy almost all of its value. Since neither of them can turn one goat into a $40 portion, Deng ends up refusing the goat and accepting $40 in cash instead.

Which characteristic of money best explains why Deng could accept payment in cash for the bicycle, but not directly in the form of part of a goat?

Choose an answer to check it, then compare with the worked solution below.
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Worked solution

Step 1: Identify what is actually going wrong in the scenario

Deng is not refusing the goat because it is hard to carry, because it will wear out, or because he distrusts Nabil as a trading partner. The problem is much more specific: the bicycle costs $40, but a whole goat is worth about $200, and a goat cannot be broken into a smaller $40 piece without being killed and losing almost all of its value. Money solves exactly this problem, because currency notes and coins can be split into whatever smaller amount a transaction requires.

Step 2: Match the problem to the correct characteristic

Divisibility is the characteristic of money that describes its ability to be split into smaller units without losing value, so that buyers and sellers can exchange exactly the right amount for any purchase, however small. Cash can supply exactly $40; a live goat cannot.

Step 3: Rule out the other options

  • Portability (option B) is about how easily money can be carried and transported, not relevant here, since the scenario never says the goat is hard to move.
  • Durability (option C) is about money keeping its physical condition when used repeatedly, not the issue, since the goat’s problem is about splitting its value, not wearing out.
  • Acceptability (option D) is about sellers being generally willing to take something as payment, but Deng’s issue is not that he refuses goats in principle, it is that this particular goat cannot be divided to match the bicycle’s price.

Final answer

The goat’s value cannot be split into the smaller amount the bicycle actually costs, while cash can. This is a problem of divisibility, option A.