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What Is an Economic Price?
Malcolm Tatum
Malcolm Tatum
An economic price is a price that includes all the expenses associated with the purchase. Sometimes known as a whole price, this form of selling price will allow for any and all direct costs associated with the transaction, while also taking into consideration any indirect costs that may apply. To some degree, the economic price will also include consideration of any opportunity cost that the buyer and seller may incur as the result of choosing to complete the proposed transaction.
It is important to understand all the factors involved before determining the selling price that also represents the economic price. For the buyer, this means having a clear understanding of what type of expenses are associated with the purchase, and deciding which of those expenses are bundled into that price. While direct expenses are usually obvious, it may take some additional effort to identify hidden costs as well as direct costs that have some influence on that purchase price. By being aware of those factors, plus considering what the buyer must forgo in order to make the purchase, it is easier to decide if the transaction is in the best interests of that buyer.
The seller must also evaluate each of these factors in order to identify the economic price that will serve as the selling price. This includes allowing for direct and indirect costs that are incurred as part of the process of selling the good or service, as well as providing customer support once the purchase is complete. Here, the factor of opportunity cost is also important to the seller, since he or she must decide if the opportunities that must be forgone in order to do business with a particular customer is really worth the effort in both the short term and the long term.
Understanding all considerations that go into an economic price is important for everyone involved. Doing so makes it easier to identify both the benefits and the potential liabilities of completing the transaction and ultimately decide which course of action is the most advantageous route. In some instances, accurately assessing the economic price and the underlying reasons for that price opens the door to negotiation between a buyer and seller, with the possibility of reaching an alternative price that still serves the purposes for both parties. Unless both parties perceive of the transaction as being beneficial, chances are that one or both parties will move on and look for other opportunities that have a greater potential of producing the desired results.
Malcolm Tatum
After many years in the teleconferencing industry, Michael decided to embrace his passion for trivia, research, and writing by becoming a full-time freelance writer. Since then, he has contributed articles to a variety of print and online publications, including WiseGEEK, and his work has also appeared in poetry collections, devotional anthologies, and several newspapers. Malcolm’s other interests include collecting vinyl records, minor league baseball, and cycling.
Learn more...
Malcolm Tatum
After many years in the teleconferencing industry, Michael decided to embrace his passion for trivia, research, and writing by becoming a full-time freelance writer. Since then, he has contributed articles to a variety of print and online publications, including WiseGEEK, and his work has also appeared in poetry collections, devotional anthologies, and several newspapers. Malcolm’s other interests include collecting vinyl records, minor league baseball, and cycling.
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![The seller must also evaluate factors in order to identify the economic price that will serve as the selling price.]()
By: juraThe seller must also evaluate factors in order to identify the economic price that will serve as the selling price.
Discussion Comments
Sellers don't have control over all of the factors that impact the price of their good. There is something called economic dependence, when the production of a good is dependent on another good or raw material. For example, a cereal brand relies on corn in order to make its product. And if the raw material's price increases, the price of the good naturally increases. If the manufacturer doesn't reflect the price increase, it will lose profits.
Some people think that manufacturers can set whatever price they want. But between competition from other sellers and uncontrollable factors, the price really sets itself.
@literally45-- No, they are not the same. Economic value is different from economic price but price does play a role in the value of a good. We can say that economic value is the price that people are willing to pay for a good. But the economic price talked about here is the market price of a good which is the cost plus profit margin for a good.
In some economic theories, this type of economic price is also discussed as the "minimum price" people are willing to pay for a good. That's because in a free market, there is competition among goods and this naturally reduces the cost of the good to one that is affordable for consumers as well as profitable to the manufacturers.
Is economic price and economic value the same thing? I need to understand these concepts for my exam but I'm confused. They seem similar, but what is the difference if there is one?
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