Discuss the
different phases of
Medium
of exchange
Answers
Answer:
Lesson Summary. A medium of exchange is a form of payment used to facilitate a sale. In today's economy, money is typically the form used as a medium of exchange. Money fulfills three functions: a medium of exchange, store of value, and unit of account, making it the most popular form used in exchange for a good.
Answer:What Is a Medium of Exchange?
A medium of exchange is an intermediary instrument or system used to facilitate the sale, purchase, or trade of goods between parties. For a system to function as a medium of exchange, it must represent a standard of value. Further, all parties must accept that standard. In modern economies, the medium of exchange is currency.
KEY TAKEAWAYS
A medium of exchange is an intermediary instrument or system used to facilitate the sale, purchase, or trade of goods between parties.
In modern economies, the medium of exchange is currency.
If money—as represented by a currency—is no longer viable as a medium of exchange, or if its monetary units can no longer be accurately valued, consumers lose their ability to plan budgets, and there is no longer a way to gauge supply and demand accurately.
How a Medium of Exchange Works
Using a medium of exchange allows for greater efficiency in an economy and stimulates an increase in overall trading activity. In a traditional barter system, trade between two parties can only happen if one party has a commodity that another party desires, and vice versa. The chance of this happening simultaneously as a cross occurrence—where each party desires something that the other party has—is improbable.
Thankfully, with a medium of exchange, such as gold, if one party had a cow and happened to be in the market for a lawnmower, the cow owner could sell his animal for gold coins, which he may, in turn, use to purchase the lawnmower.