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Chapter 11 Lecture note for Business Economics
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Chapter 11 Lecture note for Business Economics
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Business Economic- Ch11Ch 11- Perfect Competition and
Monopoly
Money
A commodity that is seen as a medium of economic exchange for prices and values to be
represented.
The function of money
A medium of exchange
People do not require money in a subsistence economy where they manufacture their own
clothes, food, entertainment.
People exchanges with other people.
However, the complexity of a contemporary industrialised economy is completely
impracticable for most objectives. What is required is a means of exchange.
Something that can be used to exchange commodities and services. that is widely accepted as
a method of payment for products and services, as well as for labour and other key services
Any such medium is referred to as ‘money.'
Money must be convenient enough to carry around, come in a variety of values, large and
tiny, and be difficult to counterfeit to be an acceptable physical medium of trade.
Money, on the other hand, must be in a form that allows it to be transferred indirectly via an
appropriate procedure.
Money in the form of bookkeeping entries in bank accounts, for example, can be transferred
from one account to another via debit cards and direct debits.
A means of storing wealth
Need a system that allows them to use the results of their labour today to acquire goods and
services in the future.
Storing their wealth by saving.
A means of evaluation
Compare the value of different items, services, and assets.
Prices are used to express the value of goods, and prices are expressed in monetary terms.
Money also allows for the addition of different items, such as a person's wealth or a
company's assets.
A country's GDP is measured in dollars.
Money = 'unit of account.'
A means of establishing the value of future claims and payments
People frequently want to settle on the price of a future payment today.
Workers and managers, for example, will want to agree on a wage rate for the future year.
, Business Economic- Ch11
Contracts outlining the pricing of raw materials and other goods will be signed by businesses
with their suppliers.
The most convenient method of calculating future claims is to use money prices.
Main reasons for people have money
The transactions demand is indeed the main reason that people hold money, and this is
related to the quantity of transactions being undertaken.
The precautionary motive reflects a wish to be prepared for unexpected eventualities. To be
able to purchase goods and services if your wages are not paid on time.
Financial System
Different types of financial institutions
Banks
Bank play a role in the monetary system.
Retail banking
E.g., Barclays, HSBC, Lloyds, Royal Bank of Scotland, NatWest (part of the RBS group) and
Santander.
Offer bank accounts and loans with interest rate.
Receive large deposits from and making large loans to companies or other banks and financial
institutions; these are known as wholesale deposits and loans.
Wholesale banking
Take short periods of time to account for the non-matching of a firm’s payments and receipts
from its business.
Take longer periods of time, for various investment purposes. Because wholesale deposits and
loans often involve very large sums of money, banks compete against each other for them and
negotiate individual terms with the firm to suit the firm’s particular requirements.
Building societies
Building societies are UK institutions that historically have specialised in granting loans
(mortgages) for house purchase.
Offer saving accounts and mortgages.
Not public limited companies, their ‘shares’ being the deposits made by their investors. In
recent years, many of the building societies have converted to banks (including all the large
building societies except the Nationwide).
Now offering current account facilities and cash machines, and retail banks granting
mortgages.
As with the merging of retail and wholesale banks, this is all part of a trend away from the
narrow specialisation of the past and towards the offering of a wider and wider range of
services. This was helped by a process of financial deregulation.
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