Numéraire
In mathematical economics, the numéraire or numeraire is a tradeable economic entity in terms of whose price the relative prices of all other tradeables are expressed.
Description
In a monetary economy, acting as the numéraire is one of the functions of money, to serve as a unit of account: to provide a common benchmark relative to which the worths of various goods and services are measured.
Using a numeraire, whether monetary or some consumable good, facilitates value comparisons when only the relative prices are relevant, as in general equilibrium theory.
When economic analysis refers to a particular good as the numéraire, one says that all other prices are normalized by the price of that good.
For example, if a unit of good g has twice the market value of a unit of the numeraire, then the (relative) price of g is 2. Since the value of one unit of the numeraire relative to one unit of itself is 1, the price of the numeraire is always 1.
See also
External links
- Numéraire @ Wikipedia
