Standard SSEMI1b- Explain the role of money as a medium of exchange EQ: How does money act as a medium of exchange to facilitate transactions between consumers and producers? Notes- Role of Money

3 Characteristics 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: can be saved, retrieved and exchanged at a later time for goods and services.

Money It must also be accepted by everyone in a society. We use fiat money- money issued by government decree.

4 Important Features of Money Portable Easily transferred from one person to another. Durable Does not deteriorate when handled often. Divisible Easily changed into smaller or larger denominations. Limited Availability Money loses its value when there is too much supply.

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

Consumers want products at the cheapest possible price. Consumers decide how much of a good they are willing to buy based on price. Buyers (aka: consumers)

Decide what product to produce. Must be convinced the product will make money before they will produce Sellers want to make as much money as possible. PROFIT is their incentive to produce. Sellers

What is price? Price is the monetary value of a good or service established by supply and demand Prices allow the economy to run smoothly Price helps us decide how to allocate scarce resources

What is price? Prices are a link between producers and consumers PriceProducersConsumers HighProduce moreBuy less (more profit) LowProduce LessBuy more

A note about Prices 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