Question

In: Economics

2. Which of the following is an example of barter? A. A homeowner gives an exterminator...

2. Which of the following is an example of barter?
A. A homeowner gives an exterminator a check for $50 in exchange for extermination services.
B. A barber gives a plumber a haircut in exchange for the plumber fixing the barber’s leaky faucet.
A. You sell your old lawnmower at a yard sale and the buyer gives you $40 in payment for it.
D. All of the above are examples of barter.
E. None of them are examples of barter.


3. Which of the following statements is (are) correct?
(x) If you mark the prices of shirts at your clothing store in dollars you are using money as a unit of account
(y) When you pay for your food at the restaurant with currency you are utilizing the medium of exchange function of money.
(z) Any item that people can use to transfer purchasing power from the present to the future is called a store of value
A. (x), (y), and (z)
B. (x) and (y) only
C. (x) and (z) only
D. (y) and (z) only
E. (y) only


4. Which of the following best illustrates the concept of a store of value?
A. You shop at Dollar General because you think it is a store of value.
B. You sell items on eBay, and your prices are stated in terms of dollars.
C. You keep a very large jar of quarters, dimes, nickels and pennies in your bedroom closet.
D. You are a precious-metals dealer, and you are always aware of how many ounces of platinum trade for an ounce of gold.
E. None of the above is correct because none of them are a store of value.

Solutions

Expert Solution

2. Which of the following is an example of barter?
A. A homeowner gives an exterminator a check for $50 in exchange for extermination services. - No because the homeowner is paying for the services and using money as medium of exchange. In barter system there is exchange of goods and services without any third medium of exchange. Here, there is payment for services but there is no exchange of services.


B. A barber gives a plumber a haircut in exchange for the plumber fixing the barber’s leaky faucet. - There is exchange of services here. Barber is exchanging his hair cut service with the plumber's plumbing services. One is providing service in exchange of another service and there is no other third medium of exchange(like money). This is barter.


C. You sell your old lawnmower at a yard sale and the buyer gives you $40 in payment for it- This is sale and not barter. Barter refers to exchange of a good or service with another good or service and not payments in terms of money.


3. Which of the following statements is (are) correct?
(x) If you mark the prices of shirts at your clothing store in dollars you are using money as a unit of account- Correct because when shirts are sold, payments would come in the form of money. The value of shirts are defined in terms of money here and we would use it to account for profits, loss and worth of the shirts.


(y) When you pay for your food at the restaurant with currency you are utilizing the medium of exchange function of money- Correct because money is used to intermediate the exchange of goods and services and hence performing a function as a medium of exchange. Here for food, we are paying in terms of money and money is serving as a medium to buy food.


(z) Any item that people can use to transfer purchasing power from the present to the future is called a store of value - Correct because to act as a store of value, money must be reliably saved, stored, and retrieved. It must be predictably usable as a medium of exchange when it is retrieved. Additionally, the value of money must remain stable over time.And in this statement when we transfer purchasing power from present to future means that we transfer the ability to purchase in the future which is usable in future.
A. (x), (y), and (z)

4. Which of the following best illustrates the concept of a store of value?
A. You shop at Dollar General because you think it is a store of value - The day to day household items are no assets that could be used to trade in future or to buy something else in exchange.
B. You sell items on eBay, and your prices are stated in terms of dollars - Its a sale process and there is no saving for future. Its is money serving as a unit of account where items are valued in terms of money.
C. You keep a very large jar of quarters, dimes, nickels and pennies in your bedroom closet. - The quarters, dimes, nickles and pennies are all forms of money which could be used anytime in future for usable purposes.

D. You are a precious-metals dealer, and you are always aware of how many ounces of platinum trade for an ounce of gold- This is knowledge of the business but it does not specify that dealer is saving or keeping any metal for future use
E. None of the above is correct because none of them are a store of value.

A store of value, means a item that you can not only be used to trade but also to store it for future use.A store of value is the function of an asset that can be saved, retrieved and exchanged at a later time, and be predictably useful when retrieved. Example - money, currency, or a commodity like a precious metal or financial capital.


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