What is the cost of goods and their price? Usually these concepts are perceived in the same way, but this is not so. Economists and people who understand this area distinguish between these two words. And all because they can carry a different semantic load and are determined very differently. The article will focus on determining the value of the goods.
What is the price
You should start with an economic concept. This is a certain amount of money for which the seller will give you the goods. This word by capacity does not reflect the process of value creation, because this is a ready-made amount, taking into account all costs, time and so on. It is worth understanding what the payment is called, which is called the price. We will talk about all this below.
What is the cost
You should understand what is the value of the goods. Consider the example of a TV. His screen itself, the material from which it is made, and all the necessary materials for the console will cost a total of, say, thirty thousand Russian rubles. This is called cost. In addition to these costs, this also includes labor costs in the form of workers' salaries and a number of production costs. And the company that created it will sell the goods at a price, namely for forty thousand Russian rubles. As it became clear, ten thousand were added to the cost. And all because you still need to bring the TV to the place of sale (shipping costs), pay different state duties (taxes), make a profit, and so on. The cost and price of goods are quite complex and different concepts.
Why is there a margin in the store? All this is because you are the person to whom the sales service is provided. That is, if you directly order from a dealer, then you just pay the cost and delivery to your home. But in a store, it’s different - the company’s extra charge, surcharge for the cashier’s work, for the speed of service, for delivering things to the store and so on. When ordering a product online you will have to wait a week or more. And in a local store the goods will be more expensive, but you can get it for use right away.
What is the difference?
It is worth noting that in the formation of prices, as it became clear above, an important role is played by the exchange between the seller and the buyer, namely its intensity. If you sell goods on the Internet for two hundred rubles, but bring them within a month, this is a long time. But in the store in a few minutes, taking the goods from the counter and paying at the checkout, you get it in possession. But at the same time, for example, it will cost one and a half times more expensive. This is an important step in building a business. It should be understood and taken for granted, rather than trying to fix it. So what is the value of the goods? These are the funds spent on its production.
The modern state as a price regulator
Economics, of course, is closely linked to politics. However, the fact that the state can regulate prices independently is a fact. This restrains their unlimited growth from the owners of shops and factories. Yes, theoretically, the government, together with the head of state, can change prices. However, it is necessary to conduct the pricing process in order to make it average and balanced. It consists of several steps. The first step is to determine the task, why raise it. Then you should analyze the demand for the goods. If it is rarely taken, then there is no point in increasing the price. If the demand is large, you should increase the price. The next step is to choose a pricing methodology, analyze the possible costs of production and marriage, establish the final price.So, the cost of goods is the amount of money spent on its production.
How to distinguish between these definitions
As already noted above, price is the monetary expression of the value of goods, which forms the basis of production and sales costs. And there are other components - this is the net income that the company needs in order to exist and prevent bankruptcy.
Costing process
It will change when the conditions of production improve and the goods become better and better, volumes and costs increase, and this will already lead to the fact that more workers are needed (more wages must be paid). In general, cost depends on many factors. And also it will change if the product has undergone some changes (for example, added more ingredients to the product), or the components from which it is made have risen in price.
This is very difficult for many people to understand. And so they complain about pricing in the country. It is worth noting that such a process takes place in all countries of the world. The cost component of a product is a very complex thing.
Why are cars more expensive but electronics not?
The price of electronics decreases markedly over time, as these products tend to become obsolete, as well as newer and cheaper models. However, at the same time, cars that came out with a new version became much more expensive. The retail price for them has grown, and quite strongly, since it is set by the owner of the product, after which it passes the stage of verification by market relations, and only then it is put on sale. The state is trying to influence it with its own methods and use very unique and specific methods for pricing. In general, this is a very difficult economic category that needs to be closely studied in order to understand all aspects and subtleties once and for all. As it became clear in the article, in many respects the price depends on demand. And the value of the goods is affected by the amount of funds spent on its production.
Law of value
This is the law of commodity production, according to which the production and exchange of goods should be carried out in accordance with socially necessary labor costs. In other words, according to it, the price should correspond to the value of the goods.
This is such an economic lever. When it is used, manufacturers begin to regulate the price, seek to reduce or increase it. Such a law exists only when there are competitors. After all, if there are none, then there will be no reason to change it for better or worse for people. And thereby the market value of the goods will decrease, and indeed the whole world will become different, and the economy too. However, there is always competition and it is useless to hope for it; it is better to start exploring this area right now and understand what the value of a product and its price are. If you do not apply such a law, then the company can quickly go bankrupt. And this is not at all necessary for businessmen who have created a store or production of goods. The cost of goods is the resources and means that manufacturers spent on the thing.
Human satisfaction function
For this, stores also charge you an additional cost. After all, if you want to drink, you can go to the store and make a deal in a couple of minutes. And all this is very simple where there is no food and competition at all. Therefore, the company works on the needs of customers. After all, if you find yourself in the desert, by a miracle you will see a store and go into it, water will cost several times higher than in the city. And you have no option or choice - you have to buy it if you really need it. The cost of goods is a topic that can be discussed forever.
The classic approach to determining the value of a product and its price
The definition comes down to the fact that you identify the costs of your work - this is the cost, and then wind up a small allowance to the total amount - this is the price. The second option is that the price of a product is just the amount for which it is sold.
In the economic world, there is more than one point of view of what value is. They are presented quite differently, with different concepts. Theories of labor, demand, supply and so on. All of them adhere to their principles and truths. In the first option, market relations are completely gone. And while demand is not taken into account at all. That is, if your product is very difficult to prepare, and the demand is not very large (there is also little competition), you can increase its price by 50 percent or more. However, you will bypass other pricing principles. The cost of goods, expressed in money, is called the cost price - it is worth remembering.
Modern approach to determining the cost of a product
At the time of 2019, science came up with yet another method, which is also no less useful and effective if you are a manufacturer or the head of a company. Utility is a cost factor. The more society needs a product, the higher its price. Also, the formation is taking into account the impact of costs, which are usually associated with the production of additional units of goods.
Conclusion
Yes, as it became clear from the article - the concepts are really very tightly in contact. It is also worth noting that value is a special case of the manifestation of the value of a product. It so happened in life that human society cannot work and function in the absence of an economic good and activity, which in turn is not carried out without value. Therefore, do not be surprised at the rise in prices. This is quite normal, just get used to it. Indeed, in the manufacture of goods you need to spend a lot of energy, and you just take it off the shelf and pay. Now it became clear what is the value of the goods produced.