Economics For Today

10th Edition
Publisher: Cengage Learning
ISBN: 9781337613040



Economics For Today

10th Edition
Publisher: Cengage Learning
ISBN: 9781337613040
Chapter 24, Problem 2SQ
Textbook Problem

Comparing how many dollars it takes to attend college each year to annual earnings on a job represents the use of money as a

  1. a. medium of exchange.
  2. b. unit of account.
  3. c. store of value.
  4. d. store of coincidence.

To determine

Use of money while comparing the annual earnings and education cost.

Explanation of Solution

The barter system was the market exchange system that existed in the ancient period. According to the barter system, a commodity was exchanged with another commodity in the market. Thus, there should be double co-incidence of needs in order that exchange takes place in the market. This problem was corrected with the establishment of the money. The money is anything that serves as a medium of exchange in the market, unit of account, as well as the store of value in the economy. There are many forms of money such as the paper currencies, metallic coins, bills, and so on.

Option (b):

Money is used as a unit of account when there are different goods and services in the economy, which are different from each other. Thus, there should be a common measurement of the relative value of the commodities in the market. This measurement is the money value and thus, money is used as the unit of account. The education cost in the college as well as the total earnings are different items and comparing them needs a common measurement, which is here the dollar value. Thus, the unit of account function of money is being utilized here. Thus, it means that option 'b' is the correct answer.

Option (a):

The use of money as a medium of exchange is when the money is used for payment to the commodities purchased from the market...

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