Explain greshams law in your own words without the help of s

Explain greshams law in your own words without the help of sources. Show examples of how greshams law is used in the retail industry today. (In your own words, and knowledge. No plagiarism).

Solution

Gresham\'s law in economics states in simple terms that it is bad money that drives out good money. To explain it in simple words, it means that if there is undervaluation of one currency along with the overvaluation of another by a government, there will be an exit of of the undervalued currency but the overvalued money will enter into circulation.

This can be explained by an example: A customer wants to purchase a product worth Rs 5, but he has 5 Rs10 notes. In such a situation he will have the tendency of giving the worst Rs10 note he has. In return, the shopkeeper will have a tendency of returning Rs5 in the form of the worst possible Rs5 note he has or the worst coins he has to make it to Rs5. Therefore, it so happens that the worst currencies available with people tend to be the one most popular in circulation.