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Questions
What is meant by the double coincidence of wants? How does money overcome this problem?
Which disadvantage of the barter system is overcome by the function of money as a medium of exchange?
How does the use of money solve the problem of lack of double coincidence of wants that existed under the barter system?
Solution
- 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. This is known as 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 required by him or his family.
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