(a) Outline any four problems of barter economy.
(b) How has the introduction of money solved the problems outlined in 12(a) above?
Explanation
(a) Some problems encountered in a barter economy are:
(i) double coincidence of wants;
(ii) determining the exchange rate among goods;
(iii) barter economy also faced the problem of indivisibility i.e. where one party to the exchange has an indivisible item such as a sheep;
(iv) Some goods to be ex-changed were not easily portable;
(v) there was the problem of saving commodities for future use;
(vi) the problem of borrowing and buying on credit;
(vii) lack of specialization and division of labour.
(b)The introduction of money has solved these problems in the following ways:
(i) as a medium of exchange it breaks transactions into sale and pur-chase thus there is no need for double coincidence of wants;
(ii) as a unit of account it allows rate of exchange to be easily determined;
(iii) modern money has several units and facilitates exchange in small and large units;
(iv) modern money is easily carried about to facilitates easy transactions;
(v) as a store of value, people with surplus goods convert them into money and save until the money is needed;
(vi) money as a standard of deferred payments allows borrowing and buying on credit;
(vii) Money as a store of value and medium of exchange allows specialization and division of labour.