(a) What is commodity money? (b) Identify any three problems associated with trade by barter. (c) Explain any three ways by which the advent of money has solved the problems of the barter system.
Explanation
(a)Commodity money is any product that can be used as a means of payment but which is valuable in its own right e.g beads (b)(i) The problem of double coincidence of wants made trade difficult and time wasting. (ii) Many goods used in barter trade cannot be divided into smaller units. (iii) Problem of exchange rate makes it difficult to determine how many of one commodity was to be exchanged to another commodity. (iv) Under barter, there was little room for borrowing and lending because exchange was based on need. (v) Goods used were bulky and conveyance was difficult (vi) Some goods are perishable and so savings was difficult, making storage of wealth difficult and discouraging large scale production. (c)(i) Money has solved the problem of double coincidence of wants i.e with money you can buy all you want or sell what you have at any time. (ii) With money, payment for a commodity can be deferred to a future date. (iii) Money saves time and energy as you no longer have to search for somebody to exchange your commodity with. (iv) With money, it is possible and easier to store wealth, making room for large scale production. (v) Money has solved the problem of bulkiness since modern money can be carried around easily. (vi) Money has created a standard unit of measurement making borrowing and lending easier in the economy. (viii) Because money has several denominations, it has solved the problem of indivisibility associated with commodity money e.g cattle.