Chapter 27: Problem 2

Can you name some item that is a store of value, but does not serve the other functions of money?

Short Answer

Expert verified

A collectible art piece, like a famous painting, serves as a store of value because it retains or increases its value over time. However, it does not serve as a medium of exchange or a unit of account. This is because it is not commonly used in everyday transactions and its value is often highly specific, subjective, and not easily divisible or exchangeable. Additionally, it cannot be used as a standard measure to compare the values of different goods and services due to the varying and subjective nature of its value.

Step by step solution

Identify an item that is a store of value but not a medium of exchange or unit of account

An example of an item that serves as a store of value but does not serve as a medium of exchange or unit of account is a collectible art piece, like a famous painting.

Explain why the collectible art piece is a store of value

Collectible art pieces, such as famous paintings, are considered a store of value because they often retain or even increase their value over time. They can be considered a form of investment, as people trust that their value will not diminish, and they can be sold in the future for at least the price they were bought for, if not more.

Explain why the collectible art piece is not a medium of exchange

A medium of exchange is an intermediary instrument, such as currency, that is used to facilitate the sale, purchase, or trade of goods and services between parties. Collectible art pieces, although valuable, are not commonly used to buy other goods and services. Their value is often highly specific, requiring experts or specialized markets to determine, making them not easily divisible or exchangeable for everyday transactions. Therefore, they do not serve as a medium of exchange.

Explain why the collectible art piece is not a unit of account

A unit of account is a standard measure which allows market participants to compare the values of different goods and services with each other. The value of collectible art pieces can vary greatly between pieces, even within the same genre or style. This makes it difficult to use them as a standardized measure to compare the value of different goods. Additionally, the value of a piece is often subjective and can change depending on the preferences of the individual evaluator. This lack of standardization means that collectible art pieces do not serve as a unit of account.

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