Elucidate the use of money as a medium of exchange
Elucidate the use of money as a medium of exchange in Market System?
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1. Money substitutes for barter, which requires a coincidence of wants. (I may want what you produce but you may not want to exchange for what I have.)
2. Willingness to accept money in place of goods permits 3-way trades (or multilateral trades).
a. Floridians give money to Nebraskans for wheat who give money to Idahoans for potatoes who give money to Florida for oranges.
b. Foreign exchange markets permit Americans, Japanese, Germans, Britons, and Mexicans to complete international exchanges of goods and services.
c. Detroit autoworker produces crankshafts for Buicks. If the worker were paid in crankshafts, he would have to find grocers, clothing retailers, etc., who would be willing to exchange their products for a crankshaft. It is much more efficient to use money wages than to accept one’s wages in crankshafts!
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