Theory question 107
Money and InflationSection B (answer four questions only from this section)
(a) What is trade by barter?
(b) Highlight the problems posed by trade by barter.
Show the model answer
Model answer
(a) Trade by barter is the direct exchange of goods and services for other goods and services without the use of money.
(b) Double coincidence of wants is needed.
No common measure of value to fix exchange rates between goods.
Indivisibility of some goods.
Difficulty of storing wealth (perishability).
Difficulty of deferred payments.
Bulky goods are hard to carry (non-portability).
It discourages specialisation and large-scale production.
Time and effort wasted in finding trading partners.
Explanation
Each problem should be explained.