NCERT Solutions for Class 10 Social Science History Chapter 3
Social Science Class 10 Economics
Money and Credit 3
Important NCERT Questions Based on new NCERT Books for Session 2022-2023
Questions No: 2
How does money solve the problem of double coincidence of wants? Explain with an example of your own.
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In the barter system where the goods are exchanged directly without the use of money, the double coincidence of wants is a necessary feature. By serving as a means of exchange, money removes the need for double coincidences of wants and the complications linked with the barter system. For example, it is no longer essential for the farmer to look for a publisher who will buy his cereals as well as sell his books. All he has to do is find a buyer for his cereals. If he has exchanged his cereals for money, he can purchase whatever goods or service he needs. This is because money is the medium of exchange. Medium of exchange is one of the three basic functions of money in mainstream economics. It is a broadly established token which can be exchanged for goods and services.
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(i) Money solves the problem of double coincidence of wants because it acts as an intermediates in the exchange process.
(ii) People may purchase anything with money.
(iii) There is no need to have any goods or commodities for exchange.
(iv) Money acts as a medium of exchange.
(v) For example, a person working as an engineer in a government department gets salary from his office. With that money (salary) he purchases different goods from the market according to the requirements of his family. He makes payment in cash and does not need any products for exchange process.
1. Medium of Exchange: Money facilitates the exchange of goods and services by acting as a universally accepted medium for transactions.
2. Unit of Account: It provides a standard unit for measuring the value of goods and services, enabling easy comparison of prices.
3. Store of Value: Money holds value over time, allowing individuals to save wealth for future use without deterioration.
4. Standard of Deferred Payment: It allows transactions to occur where payments for goods or services can be postponed to a future date.
5. Liquidity: Money provides liquidity, meaning it can be easily converted into goods, services, or other assets without difficulty.
Understanding these functions helps students comprehend the importance of money in an economy, its role in transactions, and how it streamlines economic activities.