Concept
Price
Overview
A price is the quantity of payment or compensation expected, required, or given by one party to another in return for goods or services. In some situations, especially when the product is a service rather than a physical good, the price for the service may be called something else such as "rent" or "tuition". Prices are influenced by production costs, supply of the desired product, and demand for the product. A price may be determined by a monopolist or may be imposed on the firm by market conditions. Prices are usually non-negative.
Price can be quoted in currency, quantities of goods or vouchers.
In modern economies, prices are generally expressed in units of some form of currency. (More specifically, for raw materials they are expressed as currency per unit weight, e.g. euros per kilogram or Rands per KG.)
Although prices could be quoted as quantities of other goods or services, this sort of barter exchange is rarely seen. Prices are sometimes quoted in terms of vouchers such as trading stamps and air miles.
In some circumstances, cigarettes have been used as currency, for example in prisons, in times of hyperinflation, and in some places during World War II. In a black market economy, barter is also relatively common.
In many financial transactions, it is customary to quote prices in other ways. The most obvious example is in pricing a loan, when the cost will be expressed as the percentage rate of interest. The total amount of interest payable depends upon credit risk, the loan amount and the period of the loan. Other examples can be found in pricing financial derivatives and other financial assets. For instance the price of inflation-linked government securities in several countries is quoted as the actual price divided by a factor representing inflation since the security was issued.
"Price" sometimes refers to the quantity of payment requested by a seller of goods or services, rather than the eventual payment amount. In business this requested amount is often referred to as the offer price (or selling price), while the actual payment may be called transaction price (or traded price).
Economic price theory asserts that in a free market economy the market price reflects the interaction between supply and demand: the price is set so as to equate the quantity being supplied and that being demanded. In turn, these quantities are determined by the marginal utility of the asset to different buyers and to different sellers. Supply and demand, and hence price, may be influenced by other factors, such as government subsidy or manipulation through industry collusion.
When a raw material or a similar economic good is for sale at multiple locations, the law of one price is generally believed to hold. This essentially states that the cost difference between the locations cannot be greater than that representing shipping, taxes, other distribution costs and more money
Overview adapted from Wikipedia (CC BY-SA 4.0; see the article history for authors).
In the original texts
Passages from public-domain books where Price is discussed.
The actual price at which any commodity is commonly sold, is called its market price. It may either be above, or below, or exactly the same with its natural price.
Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations
names the idea; a chapter is titled for it; states what it is; author linked in the graph; opens on it
The quantity brought to market will soon be no more than sufficient to supply the effectual demand. All the different parts of its price will rise to their natural rate, and the whole price to its natural price.
Adam Smith, An Inquiry Into the Nature and Causes of the Wealth of Nations
names the idea; a chapter is titled for it; author linked in the graph; opens on it
Every one must see that by thus acting he produces a greater effect on price than if he limited his purchases to the money he has actually in hand. He creates a demand for the article to the full amount of his money and credit taken together, and raises the price proportionally to both. And this effect is produced, though none of the written instruments called substitutes for currency may be called into existence…
John Stuart Mill, Principles of Political Economy
names the idea; a chapter is titled for it; opens on it
10-1/2d. may signify, on the one hand, an ounce weight of gold, and on the other, the value of a ton of iron, this reckoning name of money has been called its _mint-price_. Hence, there sprang up the extraordinary notion that the value of gold is estimated in its own material, and that, in contradistinction to all other commodities, its price is _fixed_ by the State. It was erroneously thought that the giving of…
Karl Marx, A Contribution to the Critique of Political Economy
names the idea; states what it is; opens on it
The greater the efflux of money required to restore the equilibrium, the greater will be the gain of Germany; both by the fall of cloth, and by the rise of her general prices. The less the efflux of money requisite, the greater will be the gain of England; because the price of linen will continue lower, and her general prices will not be reduced so much. It must not, however, be imagined that high money-prices are a…
John Stuart Mill, Essays on some unsettled Questions of Political Economy
names the idea; opens on it
Related ideas
- Austrian school of economics
- Adam Smith
- Milton Friedman
- Classical economics
- Tautology (logic)
- Piero Sraffa
- Carl Menger
- Quantity
- Economics
Place in the tradition
Part of Liberalism.