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How Does Money Solve the Problem of Lack a Common Measure of Value that Existed Under the Barter System? - Economics

How does money solve the problem of lack a common measure of value that existed under the barter system?

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Solution

Money is the measure of value. The price of anyone good has to be expressed in terms of another. Under the barter system, if it is possible to get 2 kilograms of onions for a piece of cloth, the price of cloth in terms of onions will be 2, i.e., consuming one unit of cloth requires giving up 2 kilograms of onions. Now, the price of cloth can be expressed in terms of money just as it can be expressed in terms of onions. The good in terms of which the prices of all other goods are expressed is called the measure of value or the numeraire.

Concept: Concept for Barter System
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