Chapter 14, Problem 20AA

To determine

To ascertain:The costs and benefits of using the barter or money system.

Explanation of Solution

	Costs	Benefits
Barter	The problem is measuring the values that arise. For example, if a person wants 1 cow against 2 goats. But another person wants 5 goats against one cow. Thus, the problem of measuring the commodity arises.	There are no issues in the barter system about export and import trading, such as the recession in foreign exchange and adverse balance of payments. Demand is satisfied with the domestically produced.
Money	The issue with money is that its value does not remain constant which creates economic instability. Too much money is cutting its value and causing inflation.	Money's principal advantage over barter is that money will still be available. Frequently, barter is not necessary. This is due to the need for what is termed a coincidence of wanting sometimes called a double coincidence of wanting.