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Short Answer Questions · Q4

Q.State any two limitations of the barter system that led to the emergence of a money economy.

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✓ Free question

The barter system, in which goods are exchanged directly for other goods without money, suffered from several serious practical limitations as trade grew beyond small, simple communities:

  1. Double coincidence of wants: a person wishing to exchange goods had to find another person who not only had what the first person wanted, but who also wanted exactly what the first person was offering, at the same time — a difficult coincidence to arrange as the variety of goods and traders grew.

  2. No common measure of value: barter had no agreed unit to express how many units of one good were equal in value to units of another (for example, how many measures of grain equal one cow), making fair exchange difficult to negotiate.

  3. Indivisibility of goods: many goods, such as livestock, could not be divided into smaller units to match the value of a smaller purchase, without destroying their usefulness.

  4. No store of value: perishable goods like grain or fresh produce could not be 'saved' as wealth for use at a later date, unlike money.

Any two of these limitations — most commonly the double coincidence of wants and the absence of a common measure of value — are sufficient to answer this question, and together they explain why societies gradually adopted money as a common medium of exchange.

✓Final answer

Any two of: double coincidence of wants, no common measure of value, indivisibility of goods, no store of value — all limitations of barter that a money economy solved.

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