(a) Outline any four problems of barter economy. (b) How has the introduction of money...

Explanation

(a) Some problems encountered in a barter economy are:

(i) double coincidence of wants;

(ii) determining the exchange rate among goods;

(iii) barter economy also faced the problem of indivisibility i.e. where one party to the exchange has an indivisible item such as a sheep;

(iv) Some goods to be ex-changed were not easily portable;

(v) there was the problem of saving commodities for future use;

(vi) the problem of borrowing and buying on credit;

(vii) lack of specialization and division of labour.

(b)The introduction of money has solved these problems in the following ways:

(i) as a medium of exchange it breaks transactions into sale and pur-chase thus there is no need for double coincidence of wants;

(ii) as a unit of account it allows rate of exchange to be easily determined;

(iii) modern money has several units and facilitates exchange in small and large units;

(iv) modern money is easily carried about to facilitates easy transactions;

(v) as a store of value, people with surplus goods convert them into money and save until the money is needed;

(vi) money as a standard of deferred payments allows borrowing and buying on credit;

(vii) Money as a store of value and medium of exchange allows specialization and division of labour.