Final answer:
As the payment system evolves from barter to a monetary system, commodity money likely comes before paper currency, transaction costs are reduced, fewer prices need to be calculated, and specialization increases.
Step-by-step explanation:
When the payment system evolves from barter to a monetary system, it is likely that commodity money will precede the use of paper currency. Commodity money is a type of money that has intrinsic value and can be used for purposes other than as a medium of exchange, such as precious metals or cowry shells. This is a natural evolution in economic systems, as commodity money can effectively address many problems presented by barter, such as the difficulty in matching needs between two parties and the impossibility of dividing goods into smaller units for trade. On the other hand, with the introduction of money, transaction costs are reduced as it simplifies the exchange process, negates the need for a double coincidence of wants, and eliminates the complexities involved in barter negotiations.
Furthermore, the transition to a monetary system significantly decreases the number of prices that need to be calculated. In a barter economy, the number of prices is combinatorially large; every item has to have an exchange rate with every other item. However, in a monetary system, each item only needs to have a price denominated in money, thus simplifying trade and enabling economic specialization and growth.
Lastly, the move to a monetary system encourages specialization because individuals no longer need to produce everything they consume. Money allows them to specialize in producing a few goods or services and use the money earned to buy what they need, hence increasing the efficiency and productivity of the economy.