Explain the "Unit of Account" function of Money.

1.	Explain the "Unit of Account" function of Money.
Answer» (i) With the introduction of money, the value of each commodity can be estimated from its price which is in terms of a common unit, say rupees. (ii) For e.g., we know that the value of one pen is Rs.10 and value of a notebook is Rs.20. Therefore, 2 pens are equivalent to 1 notebook. Therefore, the relative value of goods can be determined. (iii) In barter system, if there are 10 goods the price of each good is measured in terms of 9 other goods which makes the exchange more complex. Thus, there is no common measure of value which gets overcome with the introduction of money.

Answer»

(i) With the introduction of money, the value of each commodity can be estimated from its price which is in terms of a common unit, say rupees.

(ii) For e.g., we know that the value of one pen is Rs.10 and value of a notebook is Rs.20.

Therefore, 2 pens are equivalent to 1 notebook. Therefore, the relative value of goods can be determined.

(iii) In barter system, if there are 10 goods the price of each good is measured in terms of 9 other goods which makes the exchange more complex. Thus, there is no common measure of value which gets overcome with the introduction of money.

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