Measure of Value

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Definition of Measure of Value:

The measure of value is the function of money that enables the values of different goods and services to be compared, also referred to as a unit of value.

Detailed Explanation:

Assume a country’s money is copper. I may agree to trade Joe two pounds of copper for a cow even if I do not need copper because I know I can trade copper with anyone else in the community. Copper is the community’s medium of exchange and is commodity money. Residents in the community would measure the value of all goods and services against copper. Perhaps a pig is worth one pound of copper. A shirt may be worth 0.25 pounds. Copper is used as a measurement of value. 

Currency acts as a measure of value because it enables people to compare the value of different goods and services. For example, assume admission to a movie is $10, and a latte at Starbucks is $5. The theater would say the cost of entry is $10, not two Starbucks® lattes. However, the intrinsic value of the movie exceeds the value of the latte at Starbucks. Unfortunately, the measure of value can illustrate the distortions of our economic system. Some star athletes are paid more than 50 times what a teacher is paid, but few would argue that the athlete’s value to society would be 50 times that of a teacher!

Dig Deeper With These Free Lessons:

What is Money
Fractional Reserve Banking and the Creation of Money
Monetary Policy – The Power of an Interest Rate

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