If all sellers decided that they would no longer accept these notes and coins, then these would cease to be money. Thus one of the disadvantages of the barter system is that any commodity or service has a series of exchange values. It's a standard of deferred payment. So the introduction of money has got over the difficulty of barter. For example, a plumber looking to feed his family would have to search out a farmer who needs plumbing work done on his house or farm.
Money has taken different forms through the ages; examples include cowry shells in Africa, large stone wheels on the Pacific island of Yap, and strings of beads called wampum used by Native Americans and early American settlers. Thus, people are enabled to compare different prices and thus see the relative values of different goods and services. As a medium of exchange, money facilitates cash transaction of goods and services. For instance, it might be more difficult for you to buy what you need if you were paid in the products your company produced rather than money. Production, distribution, and consumption are influenced to a great extent by prices, and prices are measured in money. B Measure of Value: Usually it is told that money can measure the value of anything and everything. Medium of exchange- The most important function of is that it serves as a medium of exchange.
So what could he exchange if a barter system were in operation? Money is the most liquid of all assets. Exchange took place first in the form of barter. Store of Value: Under Barter system, it is very difficult to store goods for future use. It is a store of value. The Governor-General is also Commander-in-Chief of the AustralianDefence Force. Even if a material is divided into a number of pieces, they must be capable of being reunited without loss.
Barter is a system of trading without the use of money. Generally, economists have defined four types of functions of money which are as follows: i Medium of exchange ii Measurement of value; iii Standard of deferred payments iv Store of value. As a medium of exchange, everyone must have faith that everyone else will accept it for their goods and services. Three basic function of money are:- 1. The Legislative Branch's basic function is to make laws for the common good of the People. How much of rice is to be offered to fetch a goat in exchange? But, money can be easily stored for future use.
Money has overcome the drawbacks of Barter System: Barter system makes the exchange process very difficult and highly inefficient. Imagine a farmer buying a video-recorder and agreeing to pay for it in terms of a fixed amount of wheat each week for a certain number of weeks. If I have an object, I can sell it for some price. For example: If I raise chickens and want to buy cows, I would have to find a person who is willing to sell his cows for my chickens. Suppose, the price of commodity X is Rs. Money serves as an important medium of exchange in the economy, empowering people to purchase goods and services in an attempt to satisfy their unlimited needs and wants.
Even though cows have intrinsic value, some people may not accept cattle as money. Only money is such a commodity in whose form accounts of deferred payments can be maintained in such a way so that both creditors and debtors do not stand to lose. Innumerable exchange rates under the barter system earlier caused enormous trouble in the transactions of all kinds. But Money eliminates the need of the double coincidence of wants. Gold could be kept safely without deterioration.
By working as a unit of value, money has facilitated modern business and trade. The Mona Lisa painting with a fake mustache painted over it is not money. Unit of Account- The second important function of money is that it acts as a common unit of account or measure of value. If I get paid in cash, I can give that to the barman and get a beer. Even paper money is ideal in this regard. Cattle, tobacco, shells, wheat, tea, salt, knives, leather, animals such as sheep, horses and oxen, and metals like iron, lead, tin, and copper have been used as money.
This national product is also known as national income. Money is a store of value. Now-a-days, we use paper money. Gradually, precious metals such as gold and silver replaced other metals such as iron, copper, and bronze as money. Answer: The three basic function of money are first a medium of exchange, second store of value, and third a unit of account. While the cow is difficult to transport to the store, the currency can be easily put in my pocket.
Precious metals like gold and silver are always acceptable. In addition, it does not serve as a unit of account. In this way, money creates efficiency because it eliminates uncertainty regarding what is going to be accepted as payment by various businesses. The Federal government oversees the following areas:. For example: If I raise chickens and want to buy cows, I would have to find a person who is willing to sell his cows for my chickens. Money is thus a means of saving. Money is indispensable in an economy, whether it is capitalistic or socialistic.