Bartering

POB: Bartering

Barter-this is referred to as the exchange of goods and services of other goods and services without the use of money.

What are some problems associated with bartering:

-The lack of double coincidence – this is described as a problem because in order for the exchange of goods and services to occur both parties(person A and person B) must want what each other has to offer .If there is no mutuality ( the parties do not want what they both have or doesn’t have what they want ) then a problem arises and bartering cannot occur.

• Store of wealth- this is described as a problem because the goods that were being bartered were usually perishable (easy to spoil).This is another problem because back in the early era/stone age persons didn’t have the resources and or facilities needed to store their goods as a result they were unable to store perishable goods for a long period of time. Store of wealth was a problem as well because the quality of goods reduces after a period of time. Storage became a problem also because goods were sometimes bulky (cattle) and so large spaces were needed .

• Inability to make deferred payment-This situation is like the act of trusting or credit goods and services. This is where goods and services were exchanged however their value was not received at the time of the transaction. Deferred payments are payments that are made in the future. This problem became a problem because disputes can arise due to the possible change in quality of goods received today and tomorrow.

• Common measure value-the lack of common measure value is where the goods and services didn’t have any monetary value and so it was difficult to find a common value/price when exchanging goods and services.

 Example: Person A has 1 lb of rice and person B has an Iphone ; both goods had a different value and so it was a problem to find the correct quantity to match the Iphone since it is more expensive.

Evolution of Money :

Definition of money-  is defined as a legal tender which is commonly used to pay debts or make payments. It is a medium of exchange that allows humans to live since they are able to buy goods and services that satisfy their basic needs.   

Dated back in the early era when the Bartering system was used and prevalent any commodity/natural resources that was demanded and exchanged with the agreement of both parties involved and has some form of value was used as money. This is known as commodity money. Examples ; wheat, salt, fur, metal, cotton.

Metallic money-with the progress of trade (trade is the exchange of goods and services with the use of money) persons started moving away from the bartering system and the use of commodity money became obsolete ( outdated) and was converted to metallic money .Metals like silver, copper, gold etc. were instead commonly used since they were easy to us and the measure of value and quantity can be done .   

Paper money- as time passed it became more difficult and unsafe to carry gold and or silver coins from one place to the next. Therefore, paper money was introduced. This introduction was very significant as all these monies are regulated by the Central bank.   

Credit money- as time passed by money never stopped evolving. After research they created the term credit money. Credit money is the monetary sum that is added to an account, persons are now able to save a portion of their cash a savings as deposits and enjoy withdrawals at a later date.

Plastic money-This is the latest type of money in the form of debit and credit card. The main objective was to reduce the need of always having to carry physical money/cash wherever one travels. The difference between debit and credit card is that debit card is where one makes transactions using their own money and credit card is making transactions but not with the use of one's money .It is like a loan where they would have to repay the bank.

Features of money:

Divisible-money can be broken down into smaller parts so that people can purchase goods and services at any price. Example : $1 can be broken down into 25, 10 and 5 cents.

Portable-money is easy to carry from one place to the next.

Acceptable-everyone must agree to accept (use) money as a commodity

Scarce-money must remain scarce ; not always available because it would lose its value.

 Durable-money should be long lasting

Stable- the value of money would stay the same for a period of time

Homogeneous/uniform- means that it must be identical and the same in feel and appearance.

Functions of money;   

Medium of exchange-money can be used in exchange for other goods and services.

Standard of deferred payment-this is because money does not lose its value quickly and so items that are bought on credit /the act of trusting can be paid for later with money.

Store of wealth- money can be stored or kept for long periods of time.

Unit of account-money allows goods and services a price since its value and quantity can be measured.