Question

EXERCISES
1. in situations with high risks, credit might create further problems for the borrower
Explain
2. How does money solve the problem of double coincidence of wants? Explain with
an example of your own
hose who have surplus money and those who​

Answer 1

Question 1:

Question 1:In situations with high risks, credit might create further problems for the borrower. Explain.

ANSWER...

In situations with high risks, credit might create further problems for the borrower. This is also known as a debt-trap. Taking credit involves an interest rate on the loan and if this is not paid back, then the borrower is forced to give up his collateral or asset used as the guarantee, to the lender. Thus, in situations with high risks, if the risks affect a borrower badly, then he ends up losing more than he would have without the loan.

Question 2.

How does money solve the problem of double coincidence of wants? Explain with

How does money solve the problem of double coincidence of wants? Explain withan example of your own

ANSWER...

Money solves the problem of double coincidence of wants by acting as a medium of exchange. Double coincidence of wants implies a situation where two parties agree to sell and buy each other’s commodities., i.e., what one party desires to sell is exactly what the other party wishes to buy. Money does away with this tedious and complex situation by acting as a medium of exchange that can be used for one and all commodities. For example, if an ice-cream vendor wants a bicycle but the bicycle manufacturer wants clothes, and not ice-creams, then the vendor can use money to obtain a bicycle. He does need to adhere to the bicycle man’s needs because money acts as the common medium of exchange. Similarly, the bicycle manufacturer can then use the money to buy clothes.

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