Assume that two goods exchange according to the average amount of labor that goes into producing each of them. If it takes 2 hours to produce a pie and 1 hour to produce a cake, then if Sam has 1 cake to sell
A) he could exchange his cake for 2 pies
B) he could exchange is cake for ½ of a pie
C) he could exchange his cake for 1 pie.
D) he could exchange his cake for 2 other cakes.

Question

Quizplus · Accepted Answer

Given the labor theory of value, the exchange rate between goods is based on the amount of labor required to produce them. Since a pie requires 2 hours of labor and a cake requires 1 hour, a cake would exchange for half a pie because it takes half the labor to produce a cake compared to a pie.

Assume That Two Goods Exchange According to the Average Amount