How is money used as a medium of exchange? Explain with an example.

Asked by Topperlearning User | 24th Apr, 2015, 07:31: AM

Expert Answer:

The introduction of money resulted in the end of the barter system, where goods were exchanged according to the needs. Now, money acts as an intermediate in the exchange process and is thus known as a medium of exchange. Anyone can exchange goods for money and buy commodities which are required for personal use.

 

For example, a fruit seller wants to sell his fruits in order to buy wheat. In absence of money, he will have to look for some person who wants to sell wheat and buy fruits. This is not always easy and possible. However, in the case of availability of money as a medium of exchange, the fruit seller just has to find a buyer for his fruits. Once fruits are exchanged for money, he can now purchase wheat from the market.

Answered by  | 24th Apr, 2015, 09:31: AM

Queries asked on Sunday & after 7pm from Monday to Saturday will be answered after 12pm the next working day.