Functions of Money

Money replaced barter because it makes exchange easier.

Why Barter Is Hard

Barter requires a double coincidence of wants: each person must want what the other has. It also makes saving and measuring value difficult.

Functions of Money

• Medium of exchange — accepted for goods and services.
• Unit of account — prices are stated in one measure.
• Store of value — purchasing power can be saved.
• Standard of deferred payment — debts can be settled later.

Qualities of Good Money

Good money is generally acceptable, durable, portable, divisible, scarce and difficult to counterfeit.

Practice

1. State four functions of money.
2. Explain the double coincidence of wants.
3. Name three qualities of good money.

Recap

Money is a medium of exchange, unit of account, store of value and standard of deferred payment.