Unit of account refers to a money function that provides a general measurement of value for goods and services. With money, we can know that the price of gold is $50 per gram as of January 16, 2019. Without it, we cannot value the gold.
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Through money, we can also calculate the value of our transactions and savings accounts. Likewise, we can measure the value of contracts, corporate profits, or individual income.
Why it is important
When we know the value of an item in terms of money, we can quantify the opportunity cost of consumption. It facilitates efficient decision making. For example, if a shirt costs Rp6 and a pair of shoes cost Rp12, we know that the opportunity cost to buy a pair of shoes is two shirts.
