money

• Commodity money


  • Precious metals
  • Cigarettes
• Commodity money


  Ordinary goods with industrial uses (gold) and consumption uses (cigarettes) which also serve as a medium of exchange
• Fiat money


  Paper currency issued by governments and deposits in checking accounts that are accepted as a means of payments for goods and services
• The essential condition for the survival of fiat money is the restriction of the right to supply it
• Private production of fiat money is illegal
• Society enforces the use of fiat money by making it legal tender
• IOU money


  A medium of exchange based on the debt of a private firm or individual, such as a bank deposit
• Functions of money


  • Medium of exchange
  • Unit of account
  • Store of value
  • Standard of deferred payment
• Money is used in one-half of almost all exchanges
• Barter economy


  • No medium of exchange
  • Goods are traded directly or swapped for other goods
  • Requires a double coincidence of wants
  • Trading is very expensive
• The use of money makes the trading process simpler and more efficient
• Money is a store of value because it can be used to make purchases in the future
• Other stores of value

  • Houses
  • Interest-bearing bank accounts
• Money pays no interest and its real purchasing power is eroded by inflation, so there are almost certainly better ways to store value
• Money serves as a standard of deferred payment or a unit of account over time
• Pound sterling


  Dollars
• If a firm increases advertising

  Demand curve shifts right
• Demand curve shifting right

  Increases the equilibrium price and quantity
• Marginal utility


  The additional utility (satisfaction) gained from the consumption of an additional product
• If you add up marginal utility for each unit you get total utility