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Difficulty: MediumBarter System and Its Problems

A yam farmer in a rural village requires a new hoe for planting and offers yams to a local blacksmith. However, the blacksmith declines the offer because he only requires goats for his tools. Which major drawback of trade by barter is highlighted in this situation?

  1. Lack of double coincidence of wantsAnswer
  2. B
    Indivisibility of commodities
  3. C
    Absence of a common unit of account
  4. D
    Difficulty in storing wealth

Answer

Lack of double coincidence of wants
The correct option identifies the lack of double coincidence of wants. In a barter economy, direct trade can only take place if each person wants the exact commodity offered by the other. Because the blacksmith requires goats rather than yams, the mutual alignment of needs is missing.

Step-by-Step Solution

1
Analyze the exchange conditions between the two parties in the scenario.
The yam farmer needs a hoe, but the blacksmith refuses yams because he specifically wants goats.
Determining why the barter exchange could not take place.
2
Relate the trade failure to fundamental barter drawbacks.
For barter to occur, both traders must simultaneously desire what the other party offers. Since this mutual match is missing, the exchange fails.
Matching the scenario to the concept of double coincidence of wants.

Key Concept

Double Coincidence of Wants in Barter Trade
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Topics

Barter System and Its Problems

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