Why is money transaction system better than barter system? Explain with examples.
OR
How does the use of money make examples of things easier? Explain with examples.
OR
“Money has made transactions easy”. Justify.
A person holding money can easily exchange it for any commodity or service that he or she might want. Money acts as a medium of exchange. Before the introduction of money, people practised barter system.
- For example; Take the case of a shoe maker. He wants to sell shoes in the market and buy wheat. He would have to look for a wheat growing farmer who not only wants to sell wheat but also wants to buy the shoes in exchange. The problem with the barter system was that, both the parties had to agree to buy and sell each other’s products.
- In barter system, where goods were directly exchanged without the use of money, double coincidence of wants was an essential feature.
This processes of selling and buying was very difficult and time consuming. - In contrast, in economy where money is in use, money by providing the crucial intermediate step eliminates the need for double coincidence of wants. It is no longer necessary for the shoe maker to look for a farmer who will buy his shoes and at the same time sell him wheat.
- Now, money acts as an intermediate with exchange process and makes sell and purchase processes easy and comfortable.