what function of money is highlighted when i am comparing the price of one product to another?
Top half dozen Functions of Money –Discussed
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The post-obit points highlight the top six functions of money.
Function # ane. A Medium of Exchange:
The simply alternative to using money is to go back to the castling arrangement. Still, as a system of exchange the barter system would be highly impracticable today.
For example, if the bakery who supplied the green-grocer with staff of life had to take payment in onions and carrots, he may either not like these foodstuff or he may have sufficient stocks of them.
The baker would, therefore, have to re-sell the product which would accept time and be very inconvenient. By replacing these complicated sales by the use of money information technology is possible to save a lot of trouble. If the baker accepts payment in coin this can be spent in whatever way the baker wishes. The use of coin as a medium of substitution overcomes the drawbacks of barter.
Thus, money provides the well-nigh efficient means of satisfying wants. Each consumer has a different set of wants. Money enables him (her) to determine which wants to satisfy, rank the wants in order of urgency and capametropolis (income) and act accordingly.
This type of system too enables specialisation to extend. Have, for instance, a person who performs merely a single chore in a shoe manufactory. He has not actually produced whatsoeverthing himself. So what could he exchange if a barter system were in operation? With money arrangement the trouble is removed. He tin be paid in terms of money and can use that money to buy what he wants.
Function # ii. A Mensurate of Value:
Under the castling system, it is very hard to mensurate the value of goods. For example, a horse may be valued as worth five cows or 100 quintals of wheat, or a Maruti car may exist equivalent to 10 two- wheelers. Thus one of the disadvantages of the barter system is that any commodity or service has a series of exchange values.
Money is the measuring rod of everything. Past interim equally a common denominator it permits everything to be priced, that is, valued in terms of money. Thus, people are enabled to compare different prices and thus see the relative values of unlike goods and services.
This serves ii basic purposes:
(1) Households (consumers) can plan their expenditure and
(2) Business people tin can go along records of income and costs in order to work out their profit and loss figures.
Function # 3. A Shop of Value (Purchasing Ability):
A major disadvantage of using commodities — such as wheat or salt or even animals similar horses or cows — equally money is that after a time they deteriorate and lose economic value. They are, thus, not at all satisfactory as a means of storing wealth. To realise the bug of saving in a barter economic system permit us consider a farmer. He wanted to save some wheat each week for futurity consumption. But this would be of no use to him in his old historic period because the 'savings' would have gone off.
Again, if a coal miner wanted to prepare aside a sure corporeality of coal each week for the aforementioned purpose, he would have bug of finding enough storage space for all his coal. By using coin, such problems can be overcome and people are able to save for the future. Modern form of money (such equally coins, notes and depository financial institution deposits) permit people to save their surplus income.
Thus money is used as a store of purchasing power. It can be held over a period of time and used to finance future payments. More thanover, when people save coin, they get the balls that the coin saved will have value when they wish to spend it in the future. All the same, this statement holds only if there is no severe aggrandizement (or deflation) in the state.
In other words, information technology is quite obvious that money can only deed effectively as a store of value if its ain value is stable. If, for example, most people feel that their savings would become worthless very soon, they would spend them at once and save cypher. For the concluding few years the value (or the purchasing power) of coin has been falling in Republic of india. Nevertheless in the short run—for twenty-four hour period-to-day purposes—coin has sufficient stability of value to serve quite well every bit a shop of value.
Function # 4. The Basis of Credit:
Money facilitates loans. Borrowers can use money to obtain goods and services when they are needed most. A newly married couple, for example, would demand a lot of money to completely replenish a house at in one case. They are not required to wait for, say ten years, and then as to be able to salve enough money to buy costly items like cars, refrigerators, T.V. sets, etc.
Function # five. A Unit of Account:
An aspect of coin is that it is used as a unit of account. The implication is that money is used to measure and record fiscal transactions as besides the value of goods or services produced in a country over time. The money value of appurtenances and services produced in an economic system in an bookkeeping year is called gross national product. According to J. R. Hicks, gross national product is a collection of goods and services reduced to a common basis by beingness measured in terms of money.
Part # 6. A Standard of Postponed Payment:
This is an extension of the first function. Here once again coin is used as a medium of exchange, but this fourth dimension the payment is spread over a period of fourth dimension. Thus, when appurtenances are bought on hire-purchase, they are given to the buyer upon payment of a deposit, and he then pays the remaining amount in a number of installments.
Under the barter system this blazon of transaction could involve bug. Imagine a farmer buying a video-recorder and agreeing to pay for it in terms of a fixed amount of wheat each calendar week for a certain number of weeks. After a few weeks the seller of the video recorder might take more than enough wheat.
Notwithstanding he will have to receive more wheat in the coming weeks. If coin had been used, the seller could then utilize information technology to purchase whatever he wanted, whether it is wheat or something else—now or in hereafter. In other words, the utilize of money permits postponement of spending from the present to some future occasion.
In a modern economy, most transactions (buying and selling) are made on the footing of credit. For case, it is possible to buy consumer durables such every bit T.V. sets or washing machines on hire-purchase; houses may be purchased past ways of L.I.C. or H.D.F.C. loan; most business concern dealings permit payment in the future for appurtenances delivered at present; and employees wait for a month or a week to receive their wages and salaries. Thus, the apply of money permits the members of society to defer their spending from the nowadays to some time to come date.
Nosotros, therefore, see that a money system conspicuously has advantages over a castling system. But what is money? Note the first five words in our definition – "anything which is generally acceptable." We utilize notes and coins to buy things just can do then simply equally long as shopkeepers and traders are prepared to accept those notes and coins in payment for the goods they are selling.
If all sellers decided that they would no longer accept these notes and coins, then these would stop to be money. If they decided instead to accept chair legs as money, and so nosotros would have to use chair legs which we would have to use when buying something! This example, of course, is rather ridiculous but what it points out is that annihilation can exist money as long as information technology is more often than not acceptable as such.
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