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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.

PROBLEMS CREATED BY THE BARTER SYSTEM

  • 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.
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