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Chapter 27: Q.8 (page 662)

How does the existence of money simplify the process of buying and selling?

Short Answer

Expert verified

"Among other things, money acts as a store of value, a monthly payment norm, a means of exchange, and a unit of account."

Step by step solution

01

Concept of trading.

Money is used to buy and sell things. It is a means of exchanging products or services between two persons. Both sellers and purchasers recognize it.

02

Explanation of solution.

The usage of money is used in trading. People in a barter system trade products for goods. A farmer, for example, traded his grains for pots from a potter. As a result, there were issues with that system, which are as follows:

  • The farmer should exchange the number of grain sacks for the number of pots from the potter.
  • The potter must store the grain, and if he does so for an extended period of time, the grain may spoil.
  • If a potter wishes to purchase wood, but the seller refuses to accept grains or pots, money solves all of these issues since it allows a vendor or buyer to buy or sell anything for money. Money has four functions: it is a store of value, a deferred payment standard, a medium of exchange, and a unit of account. As a result, money simplifies the process of buying and selling.

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