Question

What led to the need of a common measure of value of goods?

Answer 1

Problem of measurement of value:

• When the world moved towards division of labour and specialization problems of measuring the value of products, goods or services on equal basis arose.
• For example, it was easy to exchange wheat for rice and also easy to . maintain their rates. But, as economic development took place several goods and services started getting exchanged. This made exchange of products like wheat with other goods and services difficult.
• Problems like, if 20 kg of wheat can be exchanged for 40 kg of rice, 10 meters of cloth and 1 kg of ghee, then how much cloth can one get for 1 kg ghee?
• These problems posed the need of a common measure of value of goods to compare and assess the values of all goods against each other.
• These difficulties led to the origin of money. Money became a standard measure of value and a common denomination of trade.