Q:

What is money's basic advantage as compared to barter?

A:

Quick Answer

In a currency system, most items have a predetermined value, making transactions fast and standardized. When consumers know the cost of an item in advance, they can simply present the cash necessary to purchase the item. Paying with money also allows consumers to make purchases without worrying about finding high-demand items to trade.

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What is money's basic advantage as compared to barter?
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Full Answer

Currency creates uniform transactions, offering all buyers the same price and allowing sellers to determine the value of their goods. With barter systems, the value of a trade is determined by all participants, so the perceived value of an item may vary from person to person. This lack of consistency means traders are vulnerable to overpaying or being underpaid.

For example, a logger may believe his five lots of firewood are worth 10 bushels of apples, while an apple farmer may value the wood at seven bushels. During a cold season, the apple farmer may be willing to accept three lots of firewood for 10 bushels of apples because his need has increased.

Bartering also relies on finding traders who value the items being offered. Traders who only have expensive items may undervalue their stock when trading for lower-cost items, or they may have difficulty finding traders with products of similar quality.

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