How does money solve the problem if double coincidence of wants? Explain with an example of your own.
Answers
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.
Explanation:
Answer:
In a barter system where goods are directly exchanged without the use of money, double coincidence of wants is an essential feature. By serving as a medium of exchanges, money removes the need for double coincidence of wants and the difficulties associated with the barter system. For example, it is no longer necessary for the farmer to look for a book publisher who will buy his cereals at the same time sell him books. All he has to do is find a buyer for his cereals. If he has exchanged his cereals for money, he can purchase any goods or service which he needs. This is because money acts as a medium of exchange.
(OR)
Double coincidence of wants’ is when whatever a person desires to sell is exactly what the other wishes to buy. In a barter system where goods are directly exchanged without the use of money, double coincidence of wants is an essential feature. Money solved the problem of double coincidence of wants because after the introduction of money, people could use money as an intermediate to buy or sell things and no specific buyer or seller was required for interchanging of products. For example, a trader wishes to sell 10 sacks full of rice and expects to get it in exchange for five sacks of cereal. To find a suitable buyer to sell the sacks of rice in exchange for cereals would be very tough. However, the money will solve this problem and the trader can sell the sacks of rice to someone who needs it and in return buy cereals from the money he gets from the buyer of rice.
Explanation: