Question

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

Answer 1

The barter system is a system where goods were exchanged for goods in the olden days. It lacks double coincidence of wants. A person with a particular good has to find a person who has the good of his wants, and he should also possess the good wanted by the other person. Hence, the exchange of goods is not possible without the double coincidence of wants.

The introduction of money resulted in the end of the barter system where goods were exchanged according to needs. Now, money acts as an intermediate in the exchange process, and thus, it is known as a medium of exchange. Anyone can exchange his goods for money and buy commodities which are required by him or his family.

For example, a fruit seller wants to sell his fruits in order to buy wheat. In the absence of money, he will have to look for some person who wants to sell wheat and buy fruits. This is not easy and always possible. However, in the case of availability of money as a medium of exchange, the fruit seller just has to find a buyer for his fruits. When the fruits are exchanged for money, he can now purchase wheat from the market.