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Question

What is the barter system? Explain any one limitation in detail.

OR

What is money? Explain any one function in detail.

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Solution

Barter system refers to a system where the exchange of goods and services takes place without the use of money.

Lack of Double Coincidence of Wants: Double coincidence of wants occurs when one person has the exact commodity which another one wants in return for his commodity. There must be a simultaneous fulfillment of wants of the people involved in the exchange in the form of commodities exchanged. However, this may not be possible under barter system or without the use of money because finding a person having a commodity which one requires in exchange for what one has is a very difficult task. The inability of one person to find such another person is known as the lack of double incidence of wants.

OR

Anything that is generally accepted by the people in exchange of goods and services or in repayments of debt is known as money.

Functions of Money

Medium of Exchange: Medium of exchange is the primary function of money. People exchange goods and services through the medium of money. Money has the quality of general acceptability; therefore all the exchange in the economy takes place in terms of money. Seller accepts money in exchange for their goods. By having a medium of exchange, people do not have to waste their time and efforts. This function provides the following benefits:

(i) It overcomes the difficulties of barter system of lack of double coincidence of wants.

(ii) It allows freedom of choice as people can purchase goods of their own choice.

(iii) It widens the area of trade.


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