What is Monetary Value?

Monetary value is an economic term that describes the value a good or service brings in the open market when sold to a willing buyer. In a free market economy, price is the determining factor that drives the voluntary actions of individuals. Buyers and sellers are typically less willing to engage in an economic transaction where no value exists. The monetary value for goods and services is also driven by the utility of value. This concept describes how much use a buyer will receive when purchasing a product.

Producers often look at monetary value in incremental steps. For each increase in operating cost, they expect to receive value at least equal to the increase in cost. Economically speaking, this results in producers setting prices where marginal revenues equal marginal cost. At this equilibrium point, companies will receive no more value by producing more goods or services. This added production will result in costs increasing more than revenue, leading to lower profits and possibly sending a company into bankruptcy if it continues to operate in this manner.

Buyers receive monetary value when the utility received from a good or service is higher than the cost they must pay. Buyers must typically expend income in order to purchase goods and services. If the monetary value received from products purchased is higher than the income given up, then more value is seen in these goods or services. Utility plays a role because the buyer expects that the good or service will allow him to use the product in a variety of ways. While some goods — such as a car, house or clothing — can have somewhat obvious utility, the utility from services can be of a different range.

The utility or value of services is often shorter than that of physical goods. For example, a trip to an amusement park will typically last one day. Therefore, the monetary value is often lower than that of a service that may increase the value of a physical good, such as the addition to a home. For services that bring longer utility, the value is higher for buyers, leading to an increase in the price for these items.

With value, there is an opportunity cost involved when purchasing goods and services. The opportunity cost is the value given up when an individual purchases one item over another, losing the value of the second item. For example, purchasing a computer rather than a satellite dish means an individual can send email and surf the Internet, but not watch television channels offered through the satellite provider. An opportunity cost is usually present with most — if not all — economic transactions.