Definition of Medium of Exchange
Medium of exchange is the financial instrument which is implemented to smooth the ways of sales, purchase or trade of good between two parties, this is primarily used to avoid any inconvenience or pure barter system.
- Money is referred to as generally accepted medium of exchange; it plays most important and essential part by playing the role of a measure that decides the value. In modern day f economics, the medium of exchanges is currency.
- The usage of medium exchange in current is economics is widely distributed; it allows the greater efficiency economy and creates more opportunities of trading. If the traditional barter system is considered, when the two parties participates in trading that could possible while one had or wanted what other party had or wanted or vice versa.
Books on Medium of Exchange
The Evolution of Culture: THE DEVELOPMENT OF CIVILIZATION TO THE FALL OF ROME By Leslie A White (published by Left Coast Press, 2007)
Monetary Economics By Jagdish Handa (published by Routledge, 2002)
How Medium of Exchange works?
The notions of Medium of exchange can be discussed with a few practical examples; here two of examples are discussed below in order to clear the ideas,
- Suppose, there are two parties, and one had a cow, and another one has lawn mower, with the help of medium exchange such as gold coins, the cow owner would have to go on the research of finding a cow buyer, by this the cow owner would receive gold coins in return of the cow, and he also want a lawn mower, so to acquire it, he will would have to find a seller of lawn mower, with the medium exchange, here it is gold coins she will buy a lawn mower, paying by gold coins.
- Let’s say if we look at prisoner at war camps, cigarettes play a role of medium of exchange, if someone wants food or any other desire goods, they will trade it in return of agreeable number of smokes. So a potential buyer has the need what you are selling, and vice versa.
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