Editing Price

{{Short description|Amount of money given in order to purchase a thing or service}}
{{other uses}}
{{more footnotes|date=February 2013}}
{{Economics sidebar}}

[[File:The competitive price system adapted from Samuelson, 1961.jpg|thumb|The competitive price system according to [[Paul Samuelson]]]]
[[File:Wireless in-store price display at a clothing retailer in NJ.jpg|thumb|upright|A price display for a tagged clothes item at [[Kohl's]]]]

A '''price''' is the (usually not negative) [[quantity]] of [[payment]] or [[Financial compensation|compensation]] expected, required, or given by one [[Party (law)|party]] to another in return for [[Good (economics)|goods]] or [[Service (economics)|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".<ref>{{Cite book |last=Schindler |first=Robert M. |url=https://books.google.com/books?id=EnV7ReVVmUUC&q=%22some+situations%22 |title=Pricing Strategies: A Marketing Approach |publisher=SAGE |year=2012 |isbn=978-1-4129-6474-6 |location=Thousand Oaks, California |pages=1–3}}</ref> Prices are influenced by production [[cost]]s, [[supply (economics)|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.

Price can be quoted in currency, quantities of goods or vouchers.

* In modern [[Economy|economies]], prices are generally expressed in units of some form of [[currency]]. (More specifically, for [[Raw material|raw materials]] they are expressed as currency per unit weight, e.g. euros per kilogram or Rands per KG.) 
* Although prices could be [[Sales quote|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]]:<ref>{{Cite web|last=Banton|first=Caroline|title=Theory of Price Definition|url=https://www.investopedia.com/terms/t/theory-of-price.asp|access-date=2021-04-25|website=Investopedia|language=en}}</ref> 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

==Functions of prices==
According to [[Milton Friedman]], price has '''five functions''' in a '''free-enterprise exchange economy''' which is characterized by private ownership of the means of production:<ref>Milton Friedman, “Lerner on the Economics of Control”, in Milton Friedman (Ed.), ''Essays in Positive Economics''. Chicago: University of Chicago Press, 1953, pp. 304.</ref>
* '''Transmitting''' information about changes in the relative importance of different end-products and factors of production. 
* '''Providing''' an incentive for enterprise (a) to produce those products valued most highly by the market, and (b) to use methods of production that economize relatively scarce factors of production.
* '''Providing''' an incentive to owners of resources to direct them into the most highly remunerated uses
* '''Distributing''' output among the owners of resources
* '''Rationing''' fixed supplies of goods among consumers.

==Price and value==
The [[paradox of value]] was observed and debated by [[Classical economics|classical economists]]. [[Adam Smith]] described what is now called the ''diamond – water paradox'': diamonds command a higher price than water, yet water is essential for life and diamonds are merely ornamentation. [[Use value]] was supposed to give some measure of usefulness, later refined as [[marginal benefit]]  while [[exchange value]] was the measure of how much one good was in terms of another, namely what is now called [[relative price]].{{dubious|date=May 2013}}<!-- there were many classical and pre-classical theories of value (all of them pretty unsatisfactory until the [[Marginal Revolution]] in the 1870s, where three economists (Walras, Menger and Jevons) independently and near-simultaneously came up with marginal utility theory.)  Smith's "value in use vs. value in exchange" was only one of them.  Locke and Marx and many others used an objective value theory (labor used to produce the good).  Aristotle had a (poor) explanation as well; as did others.  All was a mishmash until marginal theory came along.  We should not here make it sound like Smith's value in use theory was refined to become marginal utility theory.-->

===Negative prices===
{{Main article|Negative pricing}}
{{See also|2020 Russia–Saudi Arabia oil price war}}
[[Negative prices]] are very unusual but possible under certain circumstances. Effectively, the owner or producer of an item pays the "buyer" to take it off their hands.

In April 2020, for the first time in history, due to the global health/economic crisis situation, the price of  [[West Texas Intermediate|West Texas Intermediate benchmark crude oil]] for May delivery contracts turned negative, with a barrel of oil at -$37.63 a barrel, a one-day drop of $55.90, or 306%, according to Dow Jones Market Data. "Negative prices means someone with a long position in oil would have to pay someone to take that oil off of their hands. Why would they do that? The main reason is a fear that if forced to take delivery of crude on the expiration of the May oil [[futures contract|contract]], there would be nowhere to put it as a glut of crude fills up available storage."<ref>{{Cite web|title=Why oil prices just crashed into negative territory — 4 things investors need to know|url=https://www.marketwatch.com/story/why-the-oil-market-just-crashed-below-0-a-barrel-4-things-investors-need-to-know-2020-04-20|last=Watts|first=William|website=MarketWatch|language=en-US|access-date=2020-05-14}}</ref> In a sense the price is still positive, just the direction of payment reverses, i.e. in this case you are paid to take some [[goods]].

[[Negative interest rates]] are a similar concept.

==Austrian School theory==
One solution offered to the paradox of the value is through the theory of marginal utility proposed by [[Carl Menger]], one of the founders of the [[Austrian School]] of economics.

As William Barber put it, human volition, the human subject, was "brought to the centre of the stage" by [[Marginalism|marginalist economics]], as a bargaining tool. Neoclassical economists sought to clarify choices open to producers and consumers in market situations, and thus "fears that cleavages in the economic structure might be unbridgeable could be suppressed".<ref>{{Cite book|title=A History of Economic Thought|last=Barber|first=William|publisher=Wesleyan University Press|year=2010|isbn=9780819569387|location=Middletown, CT|page=215|quote=fears that cleavages in the economic structure might be unbridgeable could be suppressed}}</ref>

Without denying the applicability of the Austrian theory of value as ''subjective'' only, within certain contexts of price behavior, the Polish economist [[Oskar Lange]] felt it was necessary to attempt a serious ''integration'' of the insights of classical political economy with neo-classical economics. This would then result in a much more realistic theory of price and of real behavior in response to prices. Marginalist theory lacked anything like a theory of the social framework of real market functioning, and criticism sparked off by the [[capital controversy]] initiated by [[Piero Sraffa]] revealed that most of the foundational tenets of the marginalist theory of value either reduced to [[tautology (logic)|tautologies]], or that the theory was true only if counter-factual conditions applied.{{citation needed|date=May 2013}}

One insight often ignored in the debates about price theory is something that businessmen are keenly aware of: in different markets, prices may not function according to the same principles except in some very abstract (and therefore not very useful) sense. From the classical political economists to [[Michał Kalecki]] it was known that prices for industrial goods behaved differently from prices for agricultural goods, but this idea could be extended further to other broad classes of goods and services.{{citation needed|date=May 2013}}

==Price as productive human labour time==
Marxists assert that [[Theory of value (economics)|value]] derives from the volume of [[socially necessary labour time]] exerted in the creation of an object.  This value does not relate to price in a simple manner, and the difficulty of the conversion of the mass of values into the actual prices is known as the [[transformation problem]]. However, many recent Marxists deny that any problem exists. Marx was not concerned with proving that prices derive from values. In fact, he admonished the other classical political economists (like Ricardo and Smith) for trying to make this proof. Rather, for Marx, price equals the cost of production (capital-cost and labor-costs) plus the average [[rate of profit]]. So if the average rate of profit (return on capital investment) is 22% then prices would reflect cost-of-production plus 22%. The perception that there is a transformation problem in Marx stems from the injection of [[Competitive equilibrium|Walrasian equilibrium theory]] into Marxism where there is no such thing as equilibrium.{{Citation needed|date=January 2010}}

==Confusion between prices and costs of production==
Price is not a [[synonym]] for cost.<ref>Compton, H. K. and Jessop, D. A. (1995), ''[https://www.amazon.co.uk/Dictionary-Purchasing-Supply-Terminology-Publishing/dp/1872807313 Dictionary of Purchasing and Supply: Terminology for Buying, Selling and Trading]'', Tudor Business Publishing</ref> One common form of confusion mixes price with the notion of cost of production, as in "I paid a high <u>cost</u> for <u>buying</u> my new plasma television", but technically these are different concepts. Price is what a buyer pays to acquire products from a seller. Cost of production concerns the seller's expenses (e.g., manufacturing and labor expenses) in producing the product being exchanged with a buyer. For [[marketing]] organizations seeking to make a profit, the hope is that price will exceed cost of production so that the organization can see financial gain from the transaction.

Finally, while pricing is a topic central to a company's profitability, pricing decisions are not limited to for-profit companies. The behavior of [[non-profit organizations]], such as charities, educational institutions and industry trade groups, also involves setting prices.<ref name=ewot2014>
{{cite book |last1=Heyne |first1=Paul |last2=Boettke |first2=Peter J. |last3=Prychitko |first3=David L. |title=The Economic Way of Thinking |date=2014 |publisher=Pearson |isbn=978-0-13-299129-2 |edition=13th }}</ref>{{rp|160–65}} For instance, charities seeking to raise money may set different "target" levels for donations that reward donors with increases in status (e.g., name in newsletter), gifts or other benefits; likewise educational and cultural nonprofits often price seats for events in theatres, auditoriums and stadiums. Furthermore, while non-profit organizations may not earn a "profit", by definition, it is the case that many nonprofits may desire to maximize ''net revenue''—total revenue less total cost—for various programs and activities, such as selling seats to theatrical and cultural performances.<ref name=ewot2014/>{{rp|183–94}}

==Price point==
The price of an item is also called the "price point", especially if it refers to stores that set a limited number of price points. For example, [[Dollar General]] is a [[general store]] or "[[five and dime]]" store that sets price points only at even amounts, such as exactly one, two, three, five, or ten [[dollar]]s (among others). Other stores have a policy of setting most of their prices ending in 99 cents or pence. Other stores (such as [[dollar store]]s, [[pound sterling|pound]] stores, [[euro]] stores, 100-[[yen]] stores, and so forth) only have a single price point ($1, £1, €1, ¥100), but in some cases, that price may purchase more than one of some very small items.
<ref>{{cite web|url=https://www.brainbi.dev/2019/11/17/whats-a-price-point/|title=What's a price point?|publisher=brainbi}}</ref> The term "[[price point]]" is also used to describe non-linear areas of the price curve.

== Market price ==
In [[economics]], the '''market price''' is the economic price for which a [[Good (economics)|good]] or [[Service (economics)|service]] is offered in the [[marketplace]]. It is of interest mainly in the study of [[microeconomics]]. [[Market value]] and market price are equal only under conditions of [[market efficiency]], [[Economic equilibrium|equilibrium]], and [[rational expectations]]. Market price is measured during a specific period of time and is greatly affected by the supply and demand for a good or service. For example, if demand for a good increases and supply of the good is held constant, the price for the good will rise in a marketplace with open competition.<ref>{{Citation|last=Vaggi|first=G.|title=Market Price|date=2008|url=http://link.springer.com/10.1057/978-1-349-95121-5_1251-2|work=The New Palgrave Dictionary of Economics|pages=1–2|editor-last=Palgrave Macmillan|place=London|publisher=Palgrave Macmillan UK|language=en|doi=10.1057/978-1-349-95121-5_1251-2|isbn=978-1-349-95121-5|access-date=2021-11-20|url-access=subscription}}</ref>

Under the UK's [[Sale of Goods Act 1979]], [[damages]] for non-delivery of contracted goods take account of the market price for the goods where there is an available market.<ref>UK Legislation, [https://www.legislation.gov.uk/ukpga/1979/54/part/VI Sale of Goods Act 1979, section 51(3)], accessed 11 January 2023</ref>

On [[restaurant]] [[menu]]s, the market price (often abbreviated to ''m.p.'' or ''mp'') is written instead of a specific price, meaning "price of dish depends on market price of ingredients, and price is available upon request", and is particularly used for [[seafood]], notably [[lobster]]s and [[oyster]]s.<ref>{{Citation |last1=Bhattacharyya |first1=Aditi |title=Pricing Inputs and Outputs: Market Prices Versus Shadow Prices, Market Power, and Welfare Analysis |date=2019 |url=https://doi.org/10.1007/978-3-030-23727-1_13 |work=The Palgrave Handbook of Economic Performance Analysis |pages=485–526 |editor-last=ten Raa |editor-first=Thijs |access-date=2023-07-31 |place=Cham |publisher=Springer International Publishing |language=en |doi=10.1007/978-3-030-23727-1_13 |isbn=978-3-030-23727-1 |last2=Kutlu |first2=Levent |last3=Sickles |first3=Robin C. |s2cid=159086732 |editor2-last=Greene |editor2-first=William H.|url-access=subscription }}</ref>

==Price databases==
Various price databases exist to increase price transparency in the respective markets. Examples include pricerating.org for B2B service prices in the ICT sector or the [[:de:Preistransparenzdatenbank]] in Austria.

==Other terms==
'''Basic price''' refers to the amount that a producer receives from a buyer for a unit of a good or service produced, less any taxes payable and plus subsidies payable on that unit as the result of its production or sales. It does not include any producer transport charges which are involved separately.<ref>{{Cite web|last=Statistics|first=c=AU; o=Commonwealth of Australia; ou=Australian Bureau of|date=2015-06-25|title=Glossary - Glossary|url=https://www.abs.gov.au/ausstats/abs@.nsf/Previousproducts/5209.0.55.001Glossary12012-13?opendocument&tabname=Notes&prodno=5209.0.55.001&issue=2012-13&num=&view=#:~:text=The%20basic%20price%20is%20the,of%20its%20production%20or%20sale.&text=Rather,%20such%20output%20is%20valued%20at%20its%20cost%20of%20production.|access-date=2021-04-25|website=www.abs.gov.au|language=en}}</ref>

'''List price''', also known as the manufacturer's suggested retail price ('MSRP'), or the recommended retail price ('RRP'), or the suggested retail price ('SRP') of a product is the price at which its manufacturer notionally recommends that a retailer sell the product.

'''Pay what you decide''' ('PWYD') is a pricing system which allows the purchaser to choose a price to pay based on their circumstances and the benefit which the goods or services provide for them.<ref>Shakespeare North Playhouse, [https://shakespearenorthplayhouse.co.uk/visit-us/pwyd Pay What You Decide], accessed on 30 September 2024</ref>

'''Producer price indexes''' measure the average change in the selling price of domestic producers' products over time.<ref>{{Cite web|title=Producer Price Index (PPI)|url=https://www.bls.gov/pPI/|access-date=2021-04-25|website=www.bls.gov|language=en-us}}</ref>

'''Purchase price:''' refers to the amount paid by the purchaser for receiving a unit of goods or services at the time and place required by the purchaser and any deductible taxes will not be included. The purchase price also include any transport charge for purchase to pick up the goods to a specific location in the required time.<ref>{{Cite web|last=Statistics|first=c=AU; o=Commonwealth of Australia; ou=Australian Bureau of|date=2015-06-25|title=Glossary - Glossary|url=https://www.abs.gov.au/ausstats/abs@.nsf/Previousproducts/5209.0.55.001Glossary12012-13?opendocument&tabname=Notes&prodno=5209.0.55.001&issue=2012-13&num=&view=#:~:text=The%20basic%20price%20is%20the,of%20its%20production%20or%20sale.&text=Rather,%20such%20output%20is%20valued%20at%20its%20cost%20of%20production.|access-date=2021-04-25|website=www.abs.gov.au|language=en}}</ref>

'''[[Price optimization]]''' is the use of mathematical techniques by a company to determine how customers will respond to different prices for its products and services through different channels.

==See also==
{{Portal|Business and economics|Numismatics}}
<!-- Please respect alphabetical order -->
{{columns-list|colwidth=22em|
* [[Asset pricing]]
* [[Common law of business balance]]
* [[Factor price]]
* [[Free price system ]]
* {{Annotated link|Greedflation}}
* [[Geo (marketing)]]
* [[Law of value]]
* [[Marketing mix]]
* [[Microeconomics]]
* [[Observatory of prices]]
* [[Pink tax]]
* {{Annotated link |Price fixing}}
* [[Price controls]]
* [[Price system]]
* [[Price Trends]]
* [[Pricing]] in marketing
* {{Annotated link |Profit margin}}
* [[Real prices and ideal prices]]
* [[Resale price maintenance]]
* [[Reservation price]]
* [[Share price]]
* [[Suggested retail price]]
* [[Time based pricing]]
* [[Unit of account]]
* [[Variable pricing]]
* [[Boots theory|Vimes Boots Index (VBI)]] - a proposed measure to assess the disproportionate impact of inflation and supermarket pricing practices on the poor
* [[Wholesale]]
* [[Yield management]]
}}

==Notes==
{{reflist}}

==References==
* [[Milton Friedman]], ''Price Theory''.
* [[George Stigler]], ''Theory of Price''.
* Simon Clarke, ''Marx, marginalism, and modern sociology: from Adam Smith to Max Weber'' (London: The Macmillan Press, Ltd, 1982).
* [[Makoto Itoh]] & [[Costas Lapavitsas]], ''Political Economy of Money and Finance''.
* [[Pierre Vilar]], ''A history of gold and money''.
* William Barber, ''A History of Economic Thought.''
*Vaggi G. ''The New Palgrave Dictionary of Economics: Market Price''

== Further reading ==
* [[Fernando Vianello|Vianello, F.]] [1989], “Natural (or Normal) Prices. Some Pointers”, in: ''Political Economy. Studies in the Surplus Approach'', 2, pp.&nbsp;89–105.

==External links==
{{Wiktionary}}
*{{cite EB1911|wstitle=Price |volume=22 |short=x}}
* [http://libraryguides.missouri.edu/pricesandwages Prices and Wages by Decade library guide] – Historical prices and wages research guide at the University of Missouri libraries
* [https://pricerating.org Open price database] for [[Business-to-Business|B2B]] services - developed at the [[University of Applied Sciences Northwestern Switzerland]]

{{Commodity}}
{{Microeconomics}}
{{Authority control}}

[[Category:Pricing]]