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.