Meaning and Functions of Money — Important Questions

Lack of common measure of value, Problem of storing wealth, Lack of divisibility

The main difficulties of barter system include lack of common measure of value, problem of storing wealth, and lack of divisibility. Easy transportation and high liquidity are actually advantages of money.

Cannot be refused in payment, Recognized by law, Official medium of exchange

Legal tender money cannot be refused in payment, is recognized by law, and serves as the official medium of exchange. It cannot be refused by anyone and is backed by government authority.

It eliminates the need for double coincidence of wants

As a medium of exchange, money eliminates the need for double coincidence of wants that was required in the barter system. People can exchange goods and services through money without needing to find someone who wants exactly what they have.

Measure of value

Money as a measure of value allows us to express the worth of all goods and services in common monetary units, making it easy to compare prices of different items.