Correct Option
The correct option is 1 and 3 only.
Explanation
Money serves as a medium of exchange, acting as an intermediary instrument to facilitate the sale, purchase, or trade of goods between parties. This function addresses the inefficiencies of the barter system by separating the acts of buying and selling.
Statement-wise Analysis
- Statement 1 is Correct: Money acts as an intermediate step in the exchange process. In an economy using money, an individual sells goods for money and then uses that money to buy other goods, rather than exchanging goods directly.
- Statement 2 is Incorrect: The requirement for a shoe manufacturer to find a farmer who specifically wants shoes is a characteristic of the Barter System (known as the double coincidence of wants). The primary purpose of money as a medium of exchange is to eliminate this specific requirement, allowing trade to occur without matching mutual wants directly.
- Statement 3 is Correct: Because money is generally accepted, it enables the holder to exchange it for any commodity or service available in the market. This universal acceptability is the core essence of a medium of exchange.
Key Takeaway
Key Takeaway: The "medium of exchange" function of money solves the problem of the double coincidence of wants inherent in the barter system, thereby facilitating smoother and more efficient economic transactions.