Question

Describe how money has removed the defects of the barter system.

How does money solve the problem of lack of a common measure of value that existed under the barter system? 

Explain the medium of exchange function of money

How does money solve the problem of double coincidence of wants?

Answer 1

1. Money serves as a standard unit of measurement in terms of which the value of all goods and services is measured and expressed. Under barter exchange, there existed no such common measure of value. The use of money has facilitated exchange transactions at all places and at all times.
2. Money acts as the intermediary for the exchange of goods and services. Any commodity can be purchased or sold through money. Money is acceptable to everyone in exchange for goods and services. Sellers can easily sell their goods for money. Similarly, buyers can buy goods with the help of money. In this way, the use of money has solved the problem of double coincidence of wants.