Key Points

Money And Credit of Class 10

The use of money spans a very large part of our everyday life.
In many transactions, goods are being bought and sold with the use of money.
For some, there might not be any actual transfer of money taking place now but a promise to pay money later.
A person holding money can easily exchange it for any commodity or service that he or she might want.
Thus everyone prefers to receive payments in money and then exchange the money for things that they want.

Barter system was a system of exchange that was prevalent before the use of money in ancient and medieval period.
It was a system in which good was exchange with other good. There was no common medium of exchange.
This created many problems which can be illustrated by an example.
Take the case of a shoe manufacturer. He wants to sell shoes in the market and buy wheat.
Imagine how much more difficult it would be if the shoe manufacturer had to directly exchange shoes for wheat without the use of money.
He would have to look for a wheat growing farmer who not only wants to sell wheat but also want to buy the shoes in exchange.
That is, both parties have to agree to sell and buy each other’s commodities.
This is known as double coincidence of wants. What a person desires to sell is exactly what the other wishes the need for double coincidence to buy.
In a barter system where good are directly exchanged without the use of money, double coincidence of wants is an essential feature.