The Economic Perspective: “Price Determinants”

Mary: This is Mary Walden with economist MW welcoming you to the economic perspective. Today’s program looks at price determinants.  Mike, on one of our recent walks we had a conversation about prices.  I argued that the price of anything should be determined by costs of making that product or service plus a modest profit.  You argued I was only looking at half the equation.   Please explain.

 

Mike:  Summary Answer

  • Certainly, costs are a big part of the determination of prices
  • But so too is the value placed by the buyer
  • You and I may look at a particular vehicle and value that vehicle differently
  • That means, we’re willing to pay different amounts for the vehicle
  • the dealer won’t sell the vehicle for less that it cost her
  • but if I like it better than you, I’ll offer more and outbid you, thereby increasing the ultimate price
  • every seller would like to find that person willing to pay the most for their product or service
  • sometimes that’ possible; other times it’s not
  • I’m MW

 

Mary:  And I’m Mary Walden for the Economic Perspective, an NC State Extension program from the Department of Agricultural and Resource Economics.