Functions of Goods in an Economy

In a small, isolated community, a weaver produces high-quality blankets but needs vegetables from a farmer. The farmer, however, already has enough blankets and will not trade vegetables for them. The weaver knows that the community's blacksmith highly values blankets and always needs them. The weaver trades a blanket to the blacksmith for several standardized iron ingots. The weaver then takes the iron ingots to the farmer, who readily accepts them in exchange for vegetables, knowing they can use the ingots later to buy other goods. In this economic system, which item is serving as the medium of exchange?

Consequences of a Supply Shock on Commodity Money

In an economy where grain is widely used to purchase various goods, a shoemaker who accepts grain in payment for shoes does so primarily because they intend to use the grain for their own family's consumption.

Evaluating Commodity Money

In an economy where a specific good, such as grain, is used for both personal use and for trade, match each scenario with the primary function the grain is serving.

The Trading Problem in a Simple Economy

Impact of Scarcity on a Commodity Medium of Exchange

A farmer has harvested 100 bushels of wheat. They need 50 bushels for their family's food for the year. They also want to acquire a new plow from the blacksmith, which costs the equivalent of 50 bushels of wheat. Which of the following actions best demonstrates the farmer using wheat as a medium of exchange?

Impact of Supply Changes on Commodity Money