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Barter, Evolution and Functions of Money, ICSE Class 10

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EconomicsICSE Class 10 · Money

Barter System, Evolution of Money and Functions of Money (ICSE Class 10 Economics)

Updated 17 October 2026 · Fact-checked

Barter is the direct exchange of goods for goods; it needs a double coincidence of wants and has no common measure of value, so money replaced it. Money evolved from commodity money to metallic coins to paper currency and now to bank deposits and digital forms. In law, money is whatever the law declares acceptable in payment (legal tender). Its functions are medium of exchange, measure of value, standard of deferred payment and store of value.

Money moved from barter to digital forms; teal boxes are primary functions, orange boxes are secondary functions.

Illustration drawn for QuestionBuddy.

Understand Barter, Evolution and Functions of Money

Barter system. Goods are exchanged directly for goods, e.g. wheat for shoes. Inconveniences:
1. Lack of double coincidence of wants: both parties must want what the other has.
2. No common measure of value: how many kg of wheat equal a pair of shoes?
3. Difficulty in storing wealth: perishable goods lose value.
4. Indivisibility: a cow cannot be split to buy a small item.
5. No standard for deferred payments: a loan of grain is hard to repay in the same quality.

Evolution of money. Commodity money (cattle, grain, salt, shells) then metallic money (gold, silver, copper coins) then paper money (notes) and today bank deposits, cards and digital payments such as UPI.

Legal definition. Money is anything the law declares to be money and everyone must accept in payment and in settlement of debt (legal tender). In India notes are issued by the Reserve Bank of India and coins by the Government of India. A cheque is not legal tender: a seller may refuse it.

Functions of money.

  • Primary: (1) medium of exchange: splits barter into sale and purchase; (2) measure of value (unit of account): prices of all goods are expressed in rupees.
  • Secondary: (3) standard of deferred payment: loans, rent and salaries are paid in money later; (4) store of value: wealth can be kept in the form of money, though inflation reduces its purchasing power.

How money solves barter's problems. Money is accepted by everybody (no double coincidence), is a common measure (prices), is divisible (small denominations) and can be saved.

Barter, Evolution and Functions of Money: key facts

Barter (meaning)
Goods exchanged directly for goods | Needs double coincidence of wants
Evolution
  • Commodity money
  • Metallic money
  • Paper money
  • Bank money and digital money
Legal tender
Declared by law | Must be accepted for payment and debts
Functions
  • Medium of exchange
  • Measure of value
  • Standard of deferred payment
  • Store of value

How to answer Barter, Evolution and Functions of Money questions

Mostly definitions and lists. Link each barter problem to the function of money that solves it.

  1. 1Define barter, then list 3-4 inconveniences with an example each.
  2. 2Write the stages of evolution in order.
  3. 3Quote the legal definition: anything declared by law and accepted in payment of debts.
  4. 4List functions as primary and secondary with a one-line example.
  5. 5Link problem to solution (double coincidence is solved by medium of exchange).

Barter, Evolution and Functions of Money in real life

The idea, met in an everyday situation. Answer the question in your own words, then compare with the model answer. The one-line hook is what to remember.

Trading at a village fair

Suppose Kiran has a goat and wants rice. The rice seller wants cloth, not a goat. Kiran must find a cloth seller who wants a goat. Later the village starts using rupee notes: Kiran sells the goat for ₹6,000 and buys rice and other items.

Which problem of barter does this show and which function of money solves it?

Try it first, then show the solutionSolution
  1. Rice seller does not want a goat: lack of double coincidence of wants.
  2. Money lets Kiran sell the goat to anyone and then buy rice from another.
  3. This is money as a medium of exchange.

Answer: Lack of double coincidence of wants; money as a medium of exchange solves it.

Memory hook: Sell for money, buy with money.

Tricks to remember Barter, Evolution and Functions of Money

Short memory aids. Say each one aloud once, then use it on a question the same day.

  • CMPD

    Commodity, Metal, Paper, Digital.

    Use it when: Order of evolution.

  • MM-SD-SV

    Medium, Measure, Standard of deferred payment, Store of value.

    Use it when: Functions.

  • Double coincidence

    Both must want what the other has, at the same time.

    Use it when: Barter problem.

Barter, Evolution and Functions of Money: solved examples

Ordered from board level to HOTS. Try each one before you open the solution.

Example 1: Problem of barter · 1 mark · MCQBoard level

The main difficulty of the barter system is:
(a) lack of double coincidence of wants
(b) inflation
(c) legal tender
(d) foreign trade

Try it first, then show the solutionSolution
  1. Both parties must want each other's goods.

Answer: (a)

Example 2: Functions · 2 marks · Short answerBoard level

Name the primary functions of money. (2 marks)

Try it first, then show the solutionSolution
  1. Medium of exchange.
  2. Measure of value.

Answer: Medium of exchange and measure of value.

Example 3: Deferred payment · 3 marks · Short answerHarder board level

Explain money as a standard of deferred payment, with an example. (3 marks)

Try it first, then show the solutionSolution
  1. Future payments such as loan repayments, rent and salaries are fixed in money.
  2. It is easy because money has general acceptability and a fairly stable value.
  3. Example: a bank loan of ₹1,00,000 repaid in monthly instalments.

Answer: Money is the unit for payments to be made in future.

Example 4: Barter problems · 4 marks · Long answerHarder board level

Explain any four inconveniences of the barter system and say how money removes them. (4 marks)

Try it first, then show the solutionSolution
  1. No double coincidence: money is a medium of exchange.
  2. No common measure: money gives prices.
  3. No way to store value: money can be saved.
  4. Indivisibility: money comes in small denominations.

Answer: Problem-solution pairs as above.

Example 5: Legal tender · 3 marks · Short answerHOTS / competency

A shopkeeper accepts a ₹100 note but refuses a cheque of ₹100. Explain on the basis of the legal definition of money. (3 marks)

Try it first, then show the solutionSolution
  1. A note issued by the RBI is declared legal tender: it must be accepted for payment.
  2. A cheque is an order to the bank, not declared legal tender; a seller may refuse it.
  3. Thus legal definition is about law, not about general usefulness.

Answer: The note is legal tender, the cheque is not.

Where students lose marks in Barter, Evolution and Functions of Money

The slips examiners see most often, and what to write instead.

  • Mistake: Mixing primary and secondary

    Four items shuffled.

    Wrong working

    Store of value is a primary function.

    Right working

    Primary: medium and measure; secondary: deferred payment and store.

    Do this: Learn the pairs.

    Usually costs: 1 mark.

  • Mistake: Confusing legal tender with money in the bank

    Practical view.

    Wrong working

    Cheque is legal tender.

    Right working

    Notes and coins are legal tender; a cheque is not.

    Do this: Remember "must be accepted".

    Usually costs: 1 mark.

  • Mistake: Barter defined as buying with money

    Misreading.

    Wrong working

    Barter uses currency.

    Right working

    Barter is exchange without money.

    Do this: Say "goods for goods".

    Usually costs: 1 mark.

Exam tips

  • Give an example in every barter inconvenience.
  • Link each barter problem with its solution by money.
  • Use the legal tender definition in one line.

Practice questions on Barter, Evolution and Functions of Money

Write each answer on paper first. Open the hint only if you are stuck, and the answer only when you have finished.

  1. Q1 · 1 mark · MCQBoard level

    Barter means:
    (a) buying with cards
    (b) exchange of goods for goods
    (c) lending
    (d) saving

    Hint

    Direct exchange.

    Answer

    (b)

  2. Q2 · 1 mark · Very short answerBoard level

    Define legal tender. (1 mark)

    Hint

    Law.

    Answer

    Money declared by law which must be accepted in payment of debts.

  3. Q3 · 3 marks · Short answerHarder board level

    State the stages in the evolution of money. (3 marks)

    Hint

    CMPD.

    Answer

    Commodity money, metallic money (coins), paper money, and today bank deposits and digital money.

  4. Q4 · 3 marks · Short answerHarder board level

    Explain the two secondary functions of money. (3 marks)

    Hint

    Standard and store.

    Answer

    Standard of deferred payment: debts, rents and salaries are expressed and settled in money. Store of value: people can keep purchasing power in money for the future.

  5. Q5 · 3 marks · Short answerHOTS / competency

    Suppose a country has high inflation. Explain which function of money is most affected and why. (3 marks)

    Hint

    Value falls.

    Answer

    Store of value is most affected: prices rise, so each rupee buys less, and savings lose purchasing power. Deferred payments are also hurt, as lenders get back money of lower value.

Test your recall

Answer in your head or on paper first, then open the card. Pulling an answer out of memory makes it stick far better than re-reading.

  1. 1.Barter?Show answer

    Goods exchanged for goods.

  2. 2.First stage of money?Show answer

    Commodity money.

  3. 3.Who issues notes in India?Show answer

    Reserve Bank of India.

  4. 4.Primary functions?Show answer

    Medium of exchange, measure of value.

  5. 5.Secondary functions?Show answer

    Standard of deferred payment, store of value.

Barter, Evolution and Functions of Money: frequently asked questions

What is barter?

The direct exchange of goods and services for other goods and services without money.

What are the functions of money?

Medium of exchange, measure of value, standard of deferred payment and store of value.

What is legal tender?

Money which the law says must be accepted in payment of debts.