Essay:The Definition of "Price"
Prices determine how resources are to be used. They are also
the means by which products and services that are in limited supply are
rationed among buyers. The price system of the United States is a complex
network composed of the prices of all the products bought and sold in the
economy as well as those of a myriad of services, including labor,
professional, transportation, and public-utility services. The
interrelationships of all these prices make up the "system" of
prices. The price of any particular product or service is linked to a broad,
complicated system of prices in which everything seems to depend more or less
upon everything else. If one were to ask a group of randomly selected
individuals to define "price", many would reply that price is an
amount of money paid by the buyer to the seller of a product or service or, in
other words, that price is the money value of a product or service as agreed
upon in a market transaction. This definition is, of course, valid as far as it
goes. For a complete understanding of a price in any particular transaction,
much more than the amount of money involved must be known. Both the buyer and
the seller should be familiar with not only the money amount, but with the
amount and quality of the product or service to be exchanged, the time and
place at which the exchange will take place and payment will be made, the form
of money to be used, the credit terms and discounts that apply to the
transaction, guarantees on the product or service, delivery terms, return
privileges, and other factors. In other words, both buyer and seller should be
fully aware of all the factors that comprise the total "package"
being exchanged for the asked-for amount of money in order that they may
evaluate a given price.
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