The barter system and money

Question 1

define barter

Answer 1

barter is the exchange of goods and services for other goods and services without the use of money.

Question 2

what is a subsistence economy

Answer 2

an economy that provides basic needs rather than the market.

Question 3

characteristics of barter

Answer 3

• one of the first forms of exchange
• found in subsistence economies

Question 4

disadvantages of barter

Answer 4

• coincidence of wants
• rate of exchange is needed for each trade
• some goods are not divisible
• some goods cannot be easily stored

Question 5

money can be used as:

Answer 5

• A medium of exchange
• A measure of value
• A store of value
• A standard for deferred payments

Question 6

characteristics of money

Answer 6

durable, widely accepted, divisible, portable, fungible and scarce

Question 7

what is exchange

Answer 7

a way in which individuals acquire goods that they do not produce

Question 8

what is direct proportion

Answer 8

this occurs in a society when no trading takes place as individuals attempt to produce everything for themselves.

Question 9

what is indirect proportion

Answer 9

takes place in a society when individuals specialise in the production of a few goods that they produce in excess of their needs. They trade the excess so as to obtain those that they do not produce.

Question 10

what is specialisation

Answer 10

occurs when a person or a business or even a society focuses resources and skills in the production of a single good or service or a particular aspect of a good or service.

Question 11

what are goods

Answer 11

products that are tangible and, as a result, can be seen, touched and stored.

Question 12

what are services

Answer 12

products that are intangible and can only be experienced or enjoyed. They cannot be touched, felt or stored.

Question 13

define medium of exchange

Answer 13

any item that is widely demanded and accepted by the members of society and hence can be used as an intermediary object in exchange for goods and services.

Question 14

what is the most popular medium of exchange

Answer 14

Money is the most popular medium of exchange.

Question 15

what is double coincidence of wants

Answer 15

a situation that occurs when two traders have goods that each other wants.

Question 16

define economy

Answer 16

a system responsible for regulating and organising the production, distribution and consumption of goods and services among a group of people.

Question 17

what is a producer

Answer 17

a person or economic entity responsible for adding value to a set of resources by combining or modifying them to create a new good or offer a service.

Question 18

define consumer

Answer 18

people or economic entities who use up goods and services

Question 19

define fiat money

Answer 19

money whose value lies in the amount stated on its face given the government’s promise to honor it up to that amount.

Question 20

define commodity money

Answer 20

the use of objects with high innate, functional or practical value as money.

Question 21

define credit card

Answer 21

a card issued by a financial institution that allows holders to borrow up to a predetermined sum for short periods of time.

Question 22

define business activity

Answer 22

the activity of producing and
selling goods/ services to consumers.

Question 23

advantages of barter

Answer 23

• facilitates trade without money
• enables the disposal of surplus production
• increases the availability of goods
• lays the foundation of organised method of trading we enjoy nowadays

Question 24

define money

Answer 24

anything that serves as a generally acceptable means of exchange.

Question 25

describe bills of exchange

Answer 25

An unconditional order from one person/organisation (the drawer) to another (the drawee) agreeing to make a payment in the future. The payment will be paid no presentation of the bill for payment (a sight bill), or at given date no the future (a term bill, usually in one, two or three months).

Question 26

advantages of bills of exchange

Answer 26

• allows for a credit facility to be allowed from the imports.
• The exporter has options in terms of executing the bill.
• payment is guaranteed on a specific date