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The Concept of Value
Want/Need = VALUE When you want something, you value it. For example, when you feel like having something sweet, you will value chocolate over potato chips. Value is determined by how much an item is worth to you. The value of something can be different for different times, people and places. E.g. how much you value a burger depends on how hungry you are!
Barter: What problems could arise? What problems could arise? Analysis of this Economic System reveals three aspects that are considered as problems?
Can you guess what they are? Barter: Problem 1: Standard of Value Standard of Value? Who decides what something is worth?
What happens when you want something small, like some tomatoes and the tomato vendor asks you for a table in return?
You'd probably argue that a table is worth a lot more than a few tomatoes.
Is a cow a fair exchange for a lamb?
Is a 14ct gold necklace a fair exchange for a dozen home-baked pies?
Under a barter system there was no measure of value. Because of this, you might be pressured into taking unfair deals and therefore suffering in the process. Barter: Problem 2: Double Coincidence of Wants Double Coincidence of Wants?
Exchange can take place between two persons only if each possesses the goods which the other wants.
Double Coincidence of Wants is the requirements of a barter exchange that each trader has what the other wants and wants what the other has. Because everyone doesn't necessarily want everything, the lack of Double Coincidence of Wants is a major obstacle in barter exchanges, especially for complex, modern economies. While Double Coincidence of Wants is also essential for exchanges involving money, it's such an inherent trait of money we don't think twice about it. By its very nature as a generally accepted medium of exchange, everyone WANTS money. 3. Lack of Store of Value: In a barter economy, the store of value could be done only in the form of commodities. However, we all know that commodities are perishable and they cannot be kept for a long time in the store. Because of this difficulty, the accumulation of capital or store of value was very difficult and without the accumulation of capital, economic progress could not be made. It is because of this reason that as long as barter system continued, significant progress was not made in the world anywhere.
4. Lack of Division: The second difficulty of barter exchange relates to the exchange of such commodities which cannot be divided. For example, a person has a cow and he wants cloth, food grains and other items of consumption. Under such a condition, exchange can be possible only when he discovers a person, who is in need of a cow and has all such commodities, but it is very difficult to get such a person. Then how to affect the exchange. Similarly the second problem relates to the exchange of such commodities which cannot be divided into pieces, because in this kind of situation, a big commodity like cow cannot be divided into small pieces for making payment of the goods of smaller value
5.People would spend all their time looking for others to barter with!
Commodity Money & Fiat Money Commodity Money is: Commodity Money is a form of money which has an intrinsic value, meaning it is worth something in its own right rather than simply being a token of financial value such as a banknote.
The best known form of commodity money is gold or silver coins, though any commodity can fulfill this role. Fiat Money is: Most types of cash used today do not have any real intrinsic value. For example, a banknote is virtually worthless in itself and only has value because society accepts it as a measure of currency and a unit of exchange.
This type of currency is known as Fiat Money. Currency replaces barter Bartering stopped being used as the official system for exchanging goods when money was invented. We now buy most of the things we need with money instead of bartering things we already have.
What Is Money?
What is Money? What is Currency? Both Money and Currency involve the exchange of goods and services.
Money is the most liquid asset because it is universally recognized and accepted as the common Currency.
Money The economic definition emphasizes that money is the medium of exchange, or what we use to buy things with i.e., what you earn by working and what you spend in order to buy things.
Currency Currency is the means of purchasing through trade and generally refers to printed money. Currency is the system or type of money that a particular country uses. Local currency: The local currency is Australian dollars. 15 Functions of Money Medium of Exchangepromotes economic efficiency by minimizing the time spent in exchanging goods and services. Facilitates specialization and division of labor. A good medium of exchange Must be easily standardized Must be widely accepted Must be divisible Must be easy to carry Must not deteriorate quickly Unit of Accountused to measure value in the economy: assets, goods, services. Store of Valueused to save purchasing power; allows intertemporal substitution of income most liquid of all assets but High inflation diminishes its store of value function. Money is a Medium of Exchange Medium of Exchange means: Money must be able to be swapped and retain its value. So that there is no need for any actual goods to be exchanged. Money is a Unit of Account Unit of Account means: That money can be used to set the value of items.
Money is a Store of Value Store of Value means: That money is able to be saved, put away and retrieved. But with one stipulation, that after it has been retrieved it must still be able to be used.
