Those are good questions.

1. Perhaps we can start with a barter economy. With only two goods being traded, there isn’t much of a need for money. Bakers trade apple pies for the ingredients used to produce them. They naturally ask for more ingredients than are needed to create the pies they give away because they too want apple pies.

2. For simplicity, we can assume that the population is low. There is no practical limit to the natural resources available.

3. I’m assuming a very low tech production process. Let’s assume that the farmers and bakers are able to make their own tools from scratch. Farmers can create basic farming implements from available resources. Bakers can build ovens out of clay and heat them with wood. The alternative would be to add sectors to the economy that are responsible for creating the tools used by farmers and bakers. I don’t want complexity at this point.

I’m also going to assume that training isn’t an issue. People acquire the basic skills to become farmers AND bakers as they grow up. The reason they can’t do both, perhaps, is that they don’t want to have two sets of tools, one for baking and one for farming.

I can think of some other complexities in determining which career to choose:

1. Where is the demand? Even if everyone has a special talent for farming, we can’t all be farmers.

2. Are resources available? Is there farmland if I want to be a farmer? An oven if I want to be a baker?

3. How do I pay for my raw materials – farmland and ovens/electricity? With apple pies? Is there any difference in the investment in apple pie or training time to become a farmer or a baker?

Eric