Barter and Money

What are some reasons for starting a business?

To make a living, make a fortune, have more control over working life, need flexibility, escape an uninteresting job, pursue an interest, be the boss, find satisfaction in building something, or due to personal circumstances such as redundancy.

What is barter?

Barter is the exchange of goods and services without the use of money.

What are some advantages of barter?

Greater variety in diet, avoidance of surplus, socialization, and no need for money.

What is a disadvantage of the barter system related to trading parties?

A double coincidence of wants: Both parties must want what the other offers.

Why is establishing an exchange rate a disadvantage of barter?

Individuals face problems deciding an appropriate value and common exchange rate for items; for example, how many potatoes for shoes.

What is a disadvantage of barter concerning goods that cannot be subdivided?

Some goods cannot be divided into smaller parts (e.g., animals), requiring a buyer for the entire item.

What is a storage of wealth disadvantage in the barter system?

There is no practical way to store perishable goods exchanged for future use.

What role does money play in replacing the barter system?

The disadvantages of barter encouraged the development of money as a less problematic system of exchange.

What were early forms of money?

Money initially took the form of beads, feathers, elephant tusks, grains, shells, and later gold and silver.

What are the functions of money?

Medium of exchange, measure of value, store of value, and standard for deferred payment.

What characteristic of money refers to its ability to last over time?

Durable - it cannot be easily destroyed.

Why is divisibility an important characteristic of money?

Money must be divisible so it can be broken down into smaller units for different transactions.

What does portability refer to regarding money?

Money can be carried around easily.

What is the significance of money being homogeneous?

All notes of the same denomination should look the same, ensuring standardization.

What does it mean for money to be scarce?

Its value is maintained when it is harder to acquire.

What is the evolution of money?

It evolved from barter to gold, metal, paper, plastic, electronic, and finally cryptocurrency.

What does a 'coincidence of wants' mean in relation to barter?

It refers to the situation where each party in a barter transaction has what the other wants.

Why is money considered a standard of value?

Money allows you to place a value on items, for example, a shoe costing $200.

Why must money be relatively stable in value?

Stability in value ensures trust in money’s purchasing power over time.