Question

How does the use of money make it easier to exchange things? Give an example.

Answer 1

Money overcomes the inefficiencies of the Barter system. Suppose a farmer who grows wheat wanted potatoes from another farmer who grows potatoes. There won't be any issue as long as the wheat growing farmer wants potatoes and the potato growing farmer wants wheat. Both items can be exchanged by the barter system. The problem would arise if the wheat growing farmer needs potatoes but the potato growing farmer needs tomatoes from a different farmer. The Barter system would not be useful in this case. To overcome this difficulty, money is used where money can be paid directly to buy what is needed without waiting for 'double coincidence of wants' to arise.