<p>To measure anything you need a point or frame of reference. This is the case in physics as well.</p>
<p>The moon is a certain distance from the earth, but without the earth as a base reference point, the moon just exists, it is not any distance from anything.</p>
<p>In measuring height for example, our “numeraire” is often the ground (but we could just as well choose as a numeraire the earth’s core or sea level, or anything else).</p>
<p>So, to measure prices you can also use some reference. Imagine going to an alien planet that you have no idea about and they say that coffee  costs 10 shmorcks. You have no idea what that means. By fixing the price of one thing to 1, like bread, then it makes more sense, as a point of reference. Coffee there costs as much as 10 breads.</p>
<p>Since measuring prices only has real meaning compared to other prices, we can set one and measure everything else compared to it.</p>

CC BY-SA 4.0
2022-08-18T12:35:25.060Z
That's so clear. the anecdotes are spot on. Thanks for your time.
user42019
CC BY-SA 4.0
2022-08-18T12:32:08.063Z
2022-08-18T17:20:18.683Z
2022-08-18T17:20:18.683Z
BB King
<p>I would love to have a clear-cut explanation or reference about the usefulness of a price chosen as a &quot;numeraire&quot; in the general equilibrium framework.</p>

<macroeconomics><microeconomics>
What does the idea of a price chosen as numeraire entail (both economically and mathematically)? A dumb down explanation would be appreciated
user42019
# What does the idea of a price chosen as numeraire entail (both economically and mathematically)? A dumb down explanation would be appreciated

(Asked by: username_0 on 2022-08-18)

I would love to have a clear-cut explanation or reference about the usefulness of a price chosen as a "numeraire" in the general equilibrium framework.

**Tags:** macroeconomics, microeconomics


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## 1 answers

### Answer by username_1 on 2022-08-18. Score: 5 | Accepted answer

To measure anything you need a point or frame of reference. This is the case in physics as well.

The moon is a certain distance from the earth, but without the earth as a base reference point, the moon just exists, it is not any distance from anything.

In measuring height for example, our “numeraire” is often the ground (but we could just as well choose as a numeraire the earth’s core or sea level, or anything else).

So, to measure prices you can also use some reference. Imagine going to an alien planet that you have no idea about and they say that coffee costs 10 shmorcks. You have no idea what that means. By fixing the price of one thing to 1, like bread, then it makes more sense, as a point of reference. Coffee there costs as much as 10 breads.

Since measuring prices only has real meaning compared to other prices, we can set one and measure everything else compared to it.

> **Comments:**
> **username_0**: That's so clear. the anecdotes are spot on. Thanks for your time.  

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