Question

How does money solve the problem of double coincidence of wants? Explain with an example of your own.

Answer 1

Double Coincidence of Wants

• Double coincidence of wants is an essential feature of the barter system.
• In Double coincidence of wants, what a buyer wishes to buy is exactly the same as what the seller wishes to sell.
• To help understand the difficulty or complications involved in double coincidence of wants, take the example of a shoe manufacturer, who is looking to purchase wheat. Here the shoe seller has to find a farmer who wants to buy his shoes, as well as a need to sell his wheat to the shoe seller.

Money – Removes Double Coincidence of Wants

• Money eliminates the need for double coincidence of wants.
• Money provides the important intermediate step, in an economy where money is in use, thereby helping to remove the double coincidence of wants.
• Because of money a farmer need not sell his agricultural produce to buy shoes, similarly a shoe seller need not search for a farmer who needs his shoes and at the same time has the need to sell the shoe seller the farmers wheat.
• All the shoe seller needs to do is find a buyer for his shoes in exchange for money and this money will give the shoe seller the flexibility to purchase any goods or services of his choice in the market at a time of his choice.
• Here money is called the medium of exchange because in the medium of exchange, money acts as an intermediate.