How can money be easily exchange itself for goods or services? Give example to explain.
Answer:
Points to Remember:
- Money is used as an intermediary in the exchange process.
- Money is used as a medium of exchange in every trade.
Answer to be written:
We use money as an intermediary in the exchange process , that’s why it is also called a medium of exchange . Anyone with the money can exchange it for any goods or services.
-
For example:
-
If a
shoe manufacturer
wants to exchange his
shoes for wheat
, he first has to look for someone who not only wants to
sell
wheat but also wants to
buy
shoes in exchange, which is a problem because if a wheat seller
refuses
to exchange wheat for shoes then this
trade
won’t happen
. That is where the
money
comes into place.
- Here if money is used as a medium of exchange then the shoe manufacturer can sell his shoes to anyone in exchange for money and then buy wheat with that money. Hence, because money is used as an intermediary in this exchange process, it is called the medium of exchange.
-
If a
shoe manufacturer
wants to exchange his
shoes for wheat
, he first has to look for someone who not only wants to
sell
wheat but also wants to
buy
shoes in exchange, which is a problem because if a wheat seller
refuses
to exchange wheat for shoes then this
trade
won’t happen
. That is where the
money
comes into place.
