Trade is an economic activity that entails buying and selling of goods and services with compensation paid to the seller by a buyer.
Commercial transactions involve price, cost, and value. The purpose is to satisfy the needs of both buyers and sellers in the long run.
So, what is the main difference between price, cost, and value? Price is the amount paid to get a product or service and the cost is the aggregate monetary value of inputs used in production. Value is the worthiness of a product or service from an individual perspective.
Keep in mind that people have different tastes and preferences. Buyers usually want to see the value of their money after paying for a product.
This article provides further differences between price, cost, and value in a tabular form. You’ll also get to learn the relationship between cost and value.
You May Also Like: Difference between Micro and Macro Economics
Comparison Table (Price Vs Cost Vs Value)
|It is the amount paid to acquire a product.||It is the number of inputs involved during production.||It is the worthiness of a product or service from a customer’s perspective.|
|What the firm charges||What the firm incurs during production||What customer gets after paying for a product e.g worth|
|It is determined from both customer and market perspectives.||It is ascertained from the producers’ perspective.||Ascertained from consumers’ perspective.|
|Estimated through pricing policy||Estimated through computation of expenditure.||Estimated through worthiness or usefulness.|
|Different markets have different prices.||The cost of production may rise or fall.||The value of a product remains constant|
|Can be measured in monetary terms||Measurable in monetary terms||Not measurable|
|The price of products usually comes after cost estimation.||Cost plays a vital role in determining price||Value assessment comes after knowing the price of a product|
|Grouped into selling price, buying price, bid price, and the transaction price||Classified as a variable cost, fixed cost, and opportunity cost.||Grouped into individual value, investment, intrinsic value, and market value.|
|Combine with production cost||Low in terms of value||Expectations|
|Medium value||Low value||Higher than market value|
What Is Price?
It is the amount a willing buyer will pay for a good or service. But in a commercial transaction, it amount sellers charge for a particular product is based on the cost incurred during production.
There are instances where the price of a product or service is determined by forces of demand and supply. The equilibrium point can be adjusted depending on market condition dynamics.
Price is a harvesting value for a firm. It helps to generate revenue and profit to foster the survival of the business in the market.
What Is Cost?
It is an expense incurred while selling a product or service. The initial inputs involved during production are also known as costs of production.
Combination of all cost of production help the firm determines the price of a product or service in the market. These costs are listed as the cost of goods sold on a trading account.
Cost is also defined as the financial worth of the sacrifice made to acquire a product or service. It determines the future or present benefits.
Cost is further divided into fixed and variable costs. Computation of these types of costs and market forces helps to set the price of a commodity in the market.
What Is Value?
It is the benefits consumer will get from a particular good or service. It is also the customers’ expectations from a product or service.
The combination of features helps to attain its worthiness. These features are user-friendly, customer support, appearance, and technical assistance.
Value is immeasurable, varies from time to time, depends on demand and supply forces, and differs from one place to another.
Main Difference between Price, Cost, and Value
- Price is a financial compensation of a good or service after use. Cost is the expenses incurred during production. Value is the usefulness of a good or service.
- Price is what the firm charges customers. Cost is what the firm pays during the production of goods or services. Value is the worthiness of goods or services.
- Price is ascertained by customers and the market. Cost is ascertained by producers and value by customer’s perspective.
- Both price and costs have monetary measurements. Value cannot be measured in terms of money.
- Price is estimated through pricing policy and the firm’s strategy. Cost is estimated from the total production expenses. Value is based on the customer’s viewpoint.
- Price is affected by competition forces from related products, demand, and supply. Cost is affected by the rising and fall of factors of production. Value tends to remain unchanged.
Similarities between Price, Cost, and Value
- Both play a vital role in a market economy.
- Both require the customer’s viewpoint
- Both involve a buyer and seller
The difference between price, cost, and value depend on several factors. But many people usually use price and cost interchangeably.
Price is the amount a customer is willing to pay for a product or service. Cost is the total expenses involved during the production of a product or service.
Value is the expectation of getting from a product or service. It is a customer’s viewpoint that triggers the company to produce something useful.
A company is responsible for setting up the price of a product or service based on the costs incurred during production. But other factors come into play in a free market.
Human strives to satisfy their needs and wants. Price, cost, and value happen to be essential factors during the satisfaction of their needs.
More Sources and References
- Ester Bola. Cost, Price, Worth, and Value Concepts. Journal of Humanities and Social Science.
- Jorge Morales. Price, Costs, and Value. Researchgate.
- Ian Lord. Real Estate Appraisal Concepts. Florida Appraisal Exam.