Essay On Money

The law of marginal utility tells us that the value of a good in the market is the value of the latter’s unit, that is, of the utility that the last unit of that good or marginal utility reports. This means that the more units of a good exist in the market, the lower the value of the commodity. And on the contrary, how much more scarce is said good, the greater its value, because the greater the utility of the last unit of said good. Hence, the water, very abundant, has a lower price in the market than diamonds, which are very scarce. A glass of water is also cheaper than a Stradivarius violin.

On the basis of this law, we can observe that when we add a new unit of a good to the stock of the same, the smaller will tend to be the price of said merchandise in the market. If there is little water, and water reports a very high marginal utility, as we add water units to the lower stock will be the value of it, because its marginal utility will decrease. And the greater the stock of a good, the greater the spread between its bid price and its ask price, since the valuation of the buyer, which is less and less worthwhile, will be increasingly lost. Well, causing that to cross transactions on said property the seller must be willing to lower the price more than his own valuation. And the market price therefore tends to fall. That is, the “spread” increases as the stock increases, in mathematical proportion.

A liquid good, that is, a good that can be used in the economy as money, is that in which the spread is reduced less than proportionally to the increase in the stock of it. In other words, its marginal utility falls much less than other goods do in similar stock increments. Thus, there are goods whose valuation in the market does not fall so quickly, that is, they maintain their value more than others, as their stocks increase, and therefore the buyer of the same does not need to offer, when he wants to sell it, much more stock To be able to close a new transaction.

As Professor Fete has seen, in the case of gold very high liquidity is given, since its marginal value hardly changes as its quantity increases, that is, its marginal value is almost constant.

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