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Question

Explain the problem of double coincidence of wants faced under barter system and how has money solved it.

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Solution

Under barter system, goods were exchanged for goods. In other words, a barter economy signifies the exchange of goods through the medium of goods. However, this system created many difficulties. The most important difficulty was the lack of double coincidence of wants. This means barter transactions can only be possible when two persons desiring exchange of commodities should have such commodities that are mutually demanded by each other.

For example, if Ram wants cloth, which Shyam has, then Ram should have a commodity that Shyam wants in exchange for the cloth. In the absence of such coincidence of wants, there will be no exchange. However, it is very difficult to find a person with whom there exists a coincidence of wants. Money acts as a medium of exchange and the consumer can exchange it for purchase of any good or service that he requires, thus solving the problem of double coincidence of wants.


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