Q. 16

How does mo

Answer :

1. Before the introduction of money as a medium of exchange, the double coincidence of wants functioned as the medium of exchange between people. Double coincidence of wants or the barter system was a system based on the exchange of commodities.

2. In a double coincidence of wants, a person, say a farmer bought shoes from a cobbler in exchange for his grain. But this could happen only when the cobbler was also in need of grain. Therefore, in this system, both the parties had to agree to buy and sell each other’s commodities.

3. Money, as a medium of transaction, essentially solved this problem because, through money, one could buy and sell whatever he/she wants at any particular point of time, without any agreement of buying and selling in terms of commodities.

NOTE – Money as a standard of payment has solved the problem of double coincidence between the buyer and seller. Thus, it has helped in easing out the method of making payments by only using money as the mode of payment.

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