Barter System

Question 1

(a) Define the term “barter system.” (2 marks)

Answer 1

The barter system is the exchange of goods and services directly without the use of money.

Question 2

(b) Discuss two problems associated with the barter system. (4 marks)

Answer 2

1. Double coincidence of wants: Both parties must need what the other is offering.
2. Indivisibility: Some goods cannot be divided into smaller units for fair exchange.

Question 3

(c) Explain how the introduction of a money system solved the problems identified in question (b). (4 marks)

Answer 3

1. Money acts as a medium of exchange, eliminating the need for a double coincidence of wants.
2. It provides a standard measure of value, making transactions more precise.