Standard SSEMI1b- Explain the role of money as a medium of exchange Notes- Role of Money Standard SSEMI1b- Explain the role of money as a medium of exchange

What is money? Money is any substance that serves as a medium of exchange, store of value, or measure of value. It must also be accepted by everyone in a society. We use fiat money- money issued by government decree.

Money Roles of Money Medium of Exchange Measure of Value Store of Value

Roles of Money Medium of Exchange: An item that can be traded for another good or service. Measure of Value: a common denominator that can be used to express worth Store of Value: allows purchasing power to be used over time

Characteristics of money To be a successful medium of exchange money must be portable, durable, divisible, and limited in supply. Successful Money

Characteristics of money Easily transferred from one person to another Portability Does not deteriorate when handled often Durability Easily split up into smaller or larger denominations Divisibility Money loses value whenever there is too much Limited Availability

Role of money Money advances the exchange of goods and services. People directly get what they need instead of waiting to barter.

Role of Buyers Consumers want products at the cheapest possible price. Consumers decide how much of a certain good they are willing to buy based on price.

Role of Sellers Sellers want to make as much as possible. Producers must be convinced that their product will make money before they produce it. Profit is sellers incentive to produce

What is price? Price is the monetary value of a product as established by supply and demand Price helps us decide how to allocate scarce resources High prices producers produce more buyers buy less Low prices producers produce less buyers buy more

How do prices help us? Prices are a link between producers and consumers Prices allow the economy to run smoothly This helps us decide how we are allocating scarce resources

Prices Help Us Prices don’t favor consumer or producer They are flexible which helps the market accommodate change No one has to worry about deciding on a price