How does money solve the problem of double coincidence of wants? Explain with an example of your own.
Double coincidence of wants is a situation where what a person desires to sell is exactly what the other wishes to buy. In a barter system where goods are directly exchanged without money, this double coincidence of wants is an essential feature. This makes transactions difficult as both parties must agree to sell and buy each other's commodities.
Money solves this problem by providing a crucial intermediate step in the exchange process. When money is in use, it is no longer necessary for a person to find someone who wants to buy what they are selling AND sell what they wish to buy. Money eliminates the need for double coincidence of wants.
For example, consider a shoe manufacturer who wants to sell shoes and buy wheat. In a barter system, he would have to find a wheat growing farmer who not only wants to sell wheat but also wants to buy shoes. This would be very difficult. However, with money, the shoe manufacturer simply needs to find a buyer for his shoes. Once he exchanges shoes for money, he can purchase wheat from anyone in the market.
Since money acts as an intermediate in the exchange process, it is called a medium of exchange. A person holding money can easily exchange it for any commodity or service they want. This is why everyone prefers to receive payments in money and then exchange it for things they want.
Explanation
This answer addresses the core concept from the NCERT textbook about how money eliminates the need for double coincidence of wants. The textbook uses the shoe manufacturer example to illustrate this concept clearly. The answer follows the 5-mark format with proper paragraph breaks and highlights key terms like 'double coincidence of wants', 'barter system', 'medium of exchange', and 'intermediate'.