In the beginning of the human kind, there was no money. The only way to get what you want is to trade what you have for it. This system is called bartering. Sometimes, you will find a person who is willing to exchange your goods. However, most of the time, it is really difficult to find the person who is willing to trade with you. Since, you desperately need to exchange, you will need to travel the whole day until you meet the right person. In this type of situation, it will take a lot of time to find the person who wants to trade with your goods. Economists defined this kind of issue as transaction costs. It is the time and effort people spend before they can exchange their goods. In barter economy, the transaction costs are incredibly high. Another major drawback of barter system is that people cannot measure the value of goods. This usually leads to conflicts since people have to make unequal exchanges. In order to reduce transaction costs and conflicts, people developed commodity money.
Commodity is a fundamental item used by almost everyone. In the past, tea, tobacco, salt, sugar are considered as commodities. People use these commodities to exchange goods. T...
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