Q. 155.0( 9 Votes )

How is money used as a medium of exchange? Explain with examples.[CBSE 2013]

Answer :

Money is used as a medium of exchange by:

1. Goods and services can be bought and sold with the use of money. For example, someone who wants shoes can buy it with money and if someone wants to sell shoes, that also can be done by receiving money.

2. Unlike barter system, it eliminates the need for double coincidence of wants.

3. Money is used as a medium of exchange because it’s the intermediary in the exchange process. Anything in the market can be bought and sold with it.

Note: Barter system had the problem of double coincidence of wants but money solves that problem by acting as a common intermediary. Today, currency is used as money.

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