Money & Banking

Microeconomic Decision Makers · 2 question types

For something to work well as money it needs certain physical and practical qualities.

Characteristic	Why it matters
Acceptability	Everyone must be willing to take it in exchange, or it cannot act as a medium of exchange.
Durability	It must last and not wear out or decay quickly, so it can act as a store of value.
Portability	It must be easy to carry so it can be used in everyday transactions.
Divisibility	It must split into smaller units so it can pay for cheap as well as expensive goods.
Scarcity (limited supply)	It must be hard to copy or produce freely, otherwise it loses value.
Uniformity	Each unit must be the same as every other of the same value, so prices are clear.

Diagram of the characteristics of money: acceptability, durability, portability, divisibility, scarcity and uniformity — Source: Understanding Money by Save My Exams

This is why modern economies use notes, coins and bank deposits rather than, say, perishable goods: a basket of fruit fails durability and divisibility, so it is poor money.