When you are using money to purchase a new MP3 player, money is serving as
Group of answer choices
a. store of value
b. medium of exchange
c. unit of account
d. double coincidence of wants
The correct answer and explanation is:
The correct answer is b. medium of exchange.
When money is used to purchase an MP3 player, it is acting as a medium of exchange. A medium of exchange refers to anything that is widely accepted as a method of payment for goods and services. In this case, money is facilitating the transaction between you and the seller, enabling you to exchange it for the MP3 player.
Money has several key functions in an economy, and the medium of exchange is one of the most important. By serving this role, money eliminates the need for bartering, where two parties must directly exchange goods or services. For example, if you wanted to obtain an MP3 player in a barter system, you would need to find someone who both had an MP3 player and was willing to trade it for something you offered. This is called the double coincidence of wants, and it can be very difficult to achieve. Money simplifies this process by providing a universal item of value that is widely accepted, making transactions easier and more efficient.
In addition to being a medium of exchange, money also serves other important functions. It acts as a store of value, meaning that it can retain its value over time, allowing people to save it for future use. Money also functions as a unit of account, providing a common measure for valuing goods and services. However, in the context of buying an MP3 player, the primary role of money is to serve as the medium through which the exchange occurs.