How Money Acts as a Medium of Exchange
- Submitted by: prettywings
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- Category: Politics: Economics
- Date Submitted: 02/05/2012 07:13 PM
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Money acts as a medium of exchange, unit of account and store of value.
The chief purpose of money is to act as the medium of exchange. Money is used to buy and sell goods. People trade money for goods and goods for money. Without money we would have to use the barter system. The AmosWEB is Economics: Encyclonomic Web*pedia (2000-2012) website states, “The key to successful barter trades is double coincidence of wants, each trader has wants the other wants and wants what the other has. Without double coincidence of wants, a barter economy can become exceedingly inefficiency. Traders spend more time seeking trades and less time producing goods.” Therefore money would make transactions easier because money removes the need for double coincidence of wants because everybody is eager to accept money in lieu of goods. I bake cakes and sell them for money and use the money to buy things I need.
Unit of account measure the common values of good and services throughout the economy. Prices of goods are quantified in terms of the monetary unit. Knowing the price of a good, in terms of money, enables both the supplier and the purchaser of the good to make decisions about how much of the good to supply and how much of the good to purchase. For example, cable suppliers charge high rates for cable. You can get every channel or you can buy a few channels. I choose to buy a few channels and opt not to get all of the services.
In order to have a store of value money must be able to be saved and retrieved at a later date and time, hold value and be useful when retrieved. I put my money into a savings account and buy things at a later date when on sell.
Reference
AmosWEB is Economics: Encyclonomic WEB*pedia. (2000-2012). Retrieved from http://http:/www.amosweb.com
The chief purpose of money is to act as the medium of exchange. Money is used to buy and sell goods. People trade money for goods and goods for money. Without money we would have to use the barter system. The AmosWEB is Economics: Encyclonomic Web*pedia (2000-2012) website states, “The key to successful barter trades is double coincidence of wants, each trader has wants the other wants and wants what the other has. Without double coincidence of wants, a barter economy can become exceedingly inefficiency. Traders spend more time seeking trades and less time producing goods.” Therefore money would make transactions easier because money removes the need for double coincidence of wants because everybody is eager to accept money in lieu of goods. I bake cakes and sell them for money and use the money to buy things I need.
Unit of account measure the common values of good and services throughout the economy. Prices of goods are quantified in terms of the monetary unit. Knowing the price of a good, in terms of money, enables both the supplier and the purchaser of the good to make decisions about how much of the good to supply and how much of the good to purchase. For example, cable suppliers charge high rates for cable. You can get every channel or you can buy a few channels. I choose to buy a few channels and opt not to get all of the services.
In order to have a store of value money must be able to be saved and retrieved at a later date and time, hold value and be useful when retrieved. I put my money into a savings account and buy things at a later date when on sell.
Reference
AmosWEB is Economics: Encyclonomic WEB*pedia. (2000-2012). Retrieved from http://http:/www.amosweb.com