How does the use of money facilitate the exchange of goods and services compared to a barter system?

• A. Money increases the number of goods that must be traded in each transaction.
• B. Money makes it harder to compare the value of different goods and services.
• C. Money acts as a medium of exchange, making transactions more efficient by eliminating the need for a double coincidence of wants.
• D. Money requires that all exchanges be made through government agencies.

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the concept of a barter system, where goods and services are exchanged directly without using money. In barter, a transaction requires a 'double coincidence of wants,' meaning both parties must want what the other offers.
2. Step 2: Recognize the limitations of barter, such as the difficulty in finding someone who has the exact good you want and who also wants the good you have, which makes trade inefficient and limits the number of possible exchanges.
3. Step 3: Define money as a medium of exchange, which means it is widely accepted in payment for goods and services, removing the need for a double coincidence of wants.
4. Step 4: Explain how money facilitates trade by providing a common measure of value, making it easier to compare prices and value different goods and services, thus increasing the efficiency of transactions.
5. Step 5: Conclude that money simplifies and expands trade by acting as a medium of exchange and a unit of account, unlike barter which requires direct exchange of goods and services.