the barter system and money

barter

the exchange of goods and/or services for other goods and/or services without the use of money

advantages of the barter system

- countries are able to have a wider variety of goods, which would not be the case without trade

- surplus products can be disposed of through the barter system

- enables a person to get what they did not have or could not produce

- countries with foreign currency problems can barter and save foreign currency for use on vital items

disadvantages

- problem with double coincidence of wants - no trade can take place without each side wanting something the other side has

- store of value - some goods must be used quickly and cannot be easily stored

- unequal exchange - the value of one good far outweighs the value of the other but trade is crucial

- indivisibility of goods - some goods are not easily divided without destroying their value

money

anything acceptable for the purchase of goods and services

characteristics of money

○ durability - it must be long-lasting
○ acceptable - people must agree to its use
○ exchangeable - it can be traded for goods and services
○ divisible - it is possible to split it into smaller units
○ scarce - it is hard to acquire
○ portable - it is easy to carry
○ homogenous - it has a standardized appearance
○ convertible - it can b changed into other currencies

functions of money

○ a medium of exchange - money makes the exchange of goods and services easier and makes barter unnecessary
○ a measure of value -money can be used to state prices for goods, which can indicate quality and value
○ a store of value - money can be saved whereas goods often cannot
○ a standard for postponed payment - money can be earned at one time and spent at another. It can also be used to repay debts over time