Demand and Supply of Cigarettes and Food: Price Effect Term Paper

While analyzing the effects of price on the demand and supply of cigarettes and food within the context of Radford’s article “The Economic Organization of a P.O.W. Camp”, we need to outline some important key points that should be discussed during this analysis. They are:

1. The preference of having an item of account rather than having a kit of double-faced rates of barter for each pair of goods;
2. The usage of cigarettes as money instead of national currency;
3. Some costs related to the use of consumer non – durable goods as currency, the possibility of reducing these costs;
4. The understanding of Radford’s term “unified”. The benefits of the market became “unified”. The help of cigarette monetary schemes in the unification of the market;
5. The role of middlemen in providing a service. The issues of the supply and demand of non – durable goods;
6. The possibility of accelerating inflation in the cigarette economy, some health problems of the smokers;
7. The role of Government in the P. O. W. camp economy.

Some bilateral rates, including a “tin of jam [being] worth one-half pound of margarine plus something else” (Radford, p. 21), are not favorable to relieving trade, due to the number of different ways in which it is possible to value a single well. While utilizing double-faced rates the following confounding variables should be considered: the existence of smaller camp’s markets. Changes in the supply of goods, through distributing, or the formation of the food parcels would also cause the complication of double-faced rates, as businesses which had been possible before would no more be viable. Changes in supply would cause difficulties in the exchange rate. New combinations of goods would cause some misunderstandings between buyers and sellers.

It must be outlined that it is an advantage to have a standard for measuring the values of all goods. Using the same unit in measuring the value of everything, it is possible to see and compare the relative, thus, the effectiveness of the trading is greatly improved.

It is necessary to explain the reasons for cigarettes’ usage as money instead of national currency. First of all, the amount of currency in the camp would be limited. Secondly, the prisoners would be from different countries and, thus, they would have a different currency. For example, there were “up to 50,000 prisoners of at least six different nationalities” (Radford, p. 21) at Stalag VIIA. Here arises the problem of the pricing of goods, and evaluating each currency relative to these goods. That would be confusing and inefficient. Thus, a standard currency would appear, as cigarettes did after the initial bartering of non – durable goods. Economic processes never stop there because cigarettes arrive regularly, so it might be stated the prisoners have a sort of income. Indeed, “the quantity of currency in the camp economy led to it being possible for the German camp to have a shop where the business of trading could be facilitated (Radford, p. 22).

Although the cigarette was effective as a currency, it has some disadvantages. First – is the non – monetary demand for cigarettes, which causes the currency to leave the economy. “Heavy air raids in the vicinity of the camp” (Radford, p. 23) would increase the non – monetary demand which leads to deflation. Another problem is related to heavy smokers, who might trade all their food parcels for cigarettes and smoke them all. Radford says that this led to “several cases of malnutrition […] among the more devoted smokers” (Redford, p. 23). Another problem was the “clipping and sweating” (Redford, p. 22), and removing tobacco from cigarettes and rolling it into new cigarettes. This meant that the unit of currency was no longer standard, and prices “could no longer be quoted in them with safety” (Redford, p. 22). This led to the situation when the currency was debased. To protect the status of the currency, there was suggested to use machine-rolled cigarettes.

A unified market is a market where goods have the same price. In the beginning, the camp market was not unified. This might be demonstrated by the history of “monopoly profits” from “trading coffee with the French” (Radford, p.24) and by that middlemen was required in various transactions – “most people dealt with a middleman, whether consciously or unconsciously, at some time or other” (Radford, p. 24). Market unification was aided by regulating trade “transactions with the French or sentries, and by the existence of middlemen” (Radford, p. 21).

Middlemen got their profits by having an advantage of the market before the process of unification. For example, if a good was selling for a much lower cost in market “A”, but consumers were purchasing it in market “B”, then middlemen would buy required goods in market “A” and sell it to the consumer in market “B”. However, the heightened demand in the supply market “A” would lead to the rise of the price, thus, the increase in market “B” would lead to the fall of the price. These processes make the prices the same gain, simply to say, they unify prices between both markets.

In a conclusion, it might be said that the unified market enables all transactions to be executed successfully. This means that the consumer is, somehow, protected from fraud trading, as prices within the market are staying standard. “Using the cigarettes as a unit of currency meant that prices throughout the market were quoted in the same terms, it was possible for the prices to be compared” (Radford, p.22). This relieved the unification process which caused a natural progression in the camp economy. Talking about Governmental influence on these processes, it is necessary to outline that it can be seen only to be in a specific position where it is really hard to be able to impose any control over the camp economy.

Works Cited

Radford, R. A. Brochure. “The Economic Organization of a P.O.W. camp” New York: New Series, 2002, pp. 1-26.