Read the following two statements carefully and choose the correct option:
Assertion (A): In barter exchange, double coincidence of wants enhances transactional efficiency.
Reason (R): Double coincidence of wants is done away with by money.
Show answer & explanation
Correct answer: D
Explanation
Correct Answer
A is false, but R is true.
Explanation
In a barter system, trade can take place only when both parties possess goods desired by the other. This condition is known as the double coincidence of wants. Rather than enhancing transactional efficiency, this requirement creates difficulties and limits the ease of exchange. Therefore, Assertion (A) is false.
Reason (R) is true because the introduction of money eliminates the need for a double coincidence of wants. With money acting as a medium of exchange, a person can sell goods for money and then use that money to purchase desired goods or services from anyone in the market.
Hence, Assertion (A) is false, while Reason (R) is true.
Key Points
• Barter exchange requires a double coincidence of wants.
• This requirement makes transactions difficult and less efficient.
• Money serves as a medium of exchange.
• The use of money removes the need for a double coincidence of wants.
Additional Facts
• The barter system was widely used before the invention of money.
• Lack of a common measure of value is another major drawback of barter.
• Money also performs functions such as a store of value and a unit of account.
Important Questions
Question: What is meant by the double coincidence of wants?
Answer: It is a situation in which two parties each possess something the other wants and are willing to exchange.
Question: How does money solve the problem of double coincidence of wants?
Answer: Money acts as a medium of exchange, eliminating the need for both parties to want each other’s goods simultaneously.