Class 10 Chapter 3rd Money And Credit
Topic – Money as a
Medium of Exchange
Definition Of Money
- Money can be defined as anything that is generally accepted as a means of exchange and at the same time act as a measure and store of value.
- Money acts as an intermediate in the exchange process and therefore it is called a medium of exchange.
- The main function of money in the economic system is to facilitate the exchange of goods and services.
Money as a
medium of exchange
- ·
The
use of money spans a very large part of our everyday life.
- ·
Several
transactions involving money are made in any single day.
- ·
Goods
are being bought and sold with the use of money.
- ·
Services
are being exchanged with money.
- ·
Goods
are also bought with a promise to pay money later.
- ·
As
the need for a medium of exchange became a necessity different materials were
used as a medium of exchange.
Barter System
- In a barter system, commodities are exchanged with commodities without the use of money.
- But both parties have to agree to sell and buy each other’s commodities,
- This is called double coincidence of wants.
- Money eliminates the need of double coincidence of wants.
Problem of double coincidence of wants
- ·
In
the olden days, when modern currency was not in vogue, people had to sell and
buy each other’s commodities. This was called the barter system.For instance if
a shoe manufacturer wants to buy wheat, he has to find a farmer who wants to
buy shoes in exchange for the wheat.
- ·
Both
parties have to agree to sell and buy each other’s commodities. This is known
as double coincidence of wants.
- ·
In
a barter system where goods are directly exchanged without the use of money,
double coincidence of wants is an essential feature.
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