Page 64 - Understanding Economics for Class 10

3 Money and Credit

Goyal Brothers Prakashan

Money as a MediuM of exchange
 A person can easily exchange money for any good or service he wants.
 Therefore, everyone prefers to make and receive payment in money so that it can be
exchanged for the things that they want.
 Example: If a shoe manufacture wants to sell shoes in the market and he wants to buy
wheat. So, first he will exchange shoes for money and then use the money to buy wheat.
These transactions would have been so difficult if money is not used. In that case he would
have to look for a wheat growing farmer who not only wants to sell wheat but also wants
to buy the shoes in exchange. That is, both parties have to agree to sell and buy each
other’s commodities. This is known as double coincidence of wants.
 Double coincidence of wants is an essential feature in case of barter system where goods
are directly exchanged for goods without the use of money.
 But, in an economy where money is used, it eliminates the need for double coincidence of wants.
 A shoe manufacturer will not have to look for a farmer who will buy the shoes produced
by him and at the same time ready to sell his wheat. He just has to find a buyer who will
buy his shoes in exchange for money and then he can go to the market to buy wheat.
 Since money acts as an intermediate in the exchange process, it is called a medium of
exchange.

Lets work these out (Page No. 40)
1. How does the use of money make it easier to exchange things?
Ans. Use of money has eliminated the need for double coincidence of wants where a good can
be exchanged for a good. Money is used as a medium of exchange and hence the use of
money has made it easier to exchange things.

2. Can you think of some examples of goods / services being exchanged or wages being paid
through barter?
Ans. Yes, there are cases where goods/services are exchanged or wages being paid through barter.
Example: In rural areas, foodgrains are exchanged for other crops. It is also common in
villages where landless labourer works on other farmer’s land and get wages in kind like
5 kg of wheat for a day’s work. There are certain schemes by government where wages
are paid in kind.

Modern forMs of Money
 Money acts as a medium of exchange in transactions but before the introduction of coins,
a variety of objects was used as money. For instance, from ancient times, Indians used
grains and cattle as money. Subsequently, the practice of using metallic coins including
gold, silver, copper emerged and persisted until the recent past century.

Economics Class X E-55