BARTER

Barter is the practice of exchanging goods or services directly for other goods or services, without the involvement of money.

BENEFITS OF BARTER

1.) Use of Excess Goods
Barter allows individuals to trade items they no longer need for those they find more valuable or useful.

2.) Promotes Specialization
This system enables people to focus on producing particular goods or services that match their skills, which leads to higher efficiency and better quality.

3.) Increases Productivity and Wealth
By encouraging specialization and the effective exchange of surplus goods, barter contributes to increased productivity and, consequently, greater wealth for individuals and communities.

DRAWBACKS OF BARTER

1.) Double Coincidence of Wants
Successful exchanges require both parties to want what the other has to offer. This can make it hard to find an exact match for needs.

2.) Challenges in Determining Value
Agreeing on how much one item is worth in relation to another can be difficult, which may cause disputes, such as deciding how many cattle should be exchanged for a plow.

3.) Indivisible Goods
Certain items, like live animals or large tools, cannot be divided into smaller units for trade, limiting the types of goods that can be exchanged.

4.) Storage Issues
Many barterable goods, like food, are perishable and cannot be stored for long periods, making it challenging to save wealth for the future.

These challenges are addressed with the use of money as a medium of exchange.

MONEY

Money is any widely accepted commodity used for exchange, as a measure of value, and as a store of wealth.

FUNCTIONS OF MONEY

1.) Medium of Exchange
Money makes trade easier by serving as an accepted method of payment for goods and services. For instance, a farmer can sell bananas for money and use that money to purchase other goods.

2.) Store of Value
Money retains its value over time, allowing individuals to save and spend it in the future, unlike perishable items that decay.

3.) Measure of Value
The price of goods and services is represented in terms of money, providing a consistent system for valuing and comparing products. For example, a book may cost $150, providing an easily understood value.

4.) Standard of Deferred Payment
Money allows debts to be paid over time. People can purchase goods on credit and pay for them later. For example, furniture stores may offer installment plans where customers pay in increments over time.

CHARACTERISTICS OF MONEY

1.) Uniform/Homogenous
Each unit of a particular denomination of money should be identical, ensuring consistency. For example, all $1 bills should be the same in appearance and value.

2.) Divisibility
Money should be easily divided into smaller amounts for small transactions. For example, coins in denominations of 5 cents, 10 cents, and 25 cents allow for smaller payments.

3.) Portability
Money should be easy to carry and use in different places. Modern bills and coins are designed to be lightweight and portable.

4.) Acceptability
For money to function as a medium of exchange, it must be widely accepted as payment for goods and services.

5.) Scarcity
Money must have a limited supply to maintain its value. If too much money circulates, its value can decrease, leading to inflation.

6.) Durability
Money must be durable enough to withstand frequent handling without wearing out. Modern banknotes and coins are built to be long-lasting.

7.) Legal Tender
Money must be legally recognized as a valid method of paying debts. Currency issued by the central bank is considered legal tender within a country.

TYPES OF MONEY

1.) Notes
Paper currency, including bills such as $1, $5, $10, $20, $50, and $100, is used as legal tender in transactions.

2.) Bank Deposits
Money in bank accounts, such as savings or checking accounts, can be used for electronic payments and transfers.

3.) Mobile Money (M-Money)
Mobile money enables users to store, send, and receive funds via mobile devices. Digital wallets and apps make secure transactions possible on smartphones and tablets.

4.) Debit and Credit Cards

• Debit Cards: Linked directly to a bank account, allowing immediate payments.
• Credit Cards: Allow users to borrow funds for purchases, with repayment due later.

Note: Unlike a credit card, payments made with a debit card are withdrawn immediately from the user's account.

5.) Coins
Metallic currency such as 5 cents, 10 cents, 25 cents, and $1 coins are used for smaller transactions and are an essential part of everyday commerce.