Difference Between Value and Price
The difference between value and price has been one of the debates that has most marked the history of the economy .
The value of a good or service has always been a very ambiguous concept. An economic good, in the same way that it can present a very high value, could also present a price in the market that, in contrast to its value, appears very low. This is the dichotomy presented by the concepts of value and price. Since, although some consider that these concepts are the same, economic science shows that this is not the case.
In practice, price tends to be defined as the economic amount that a merchant expects to receive for his product, once it is on the market. While, on the other hand, the value represents the amount that a customer is willing to pay for a certain good or service.
All this based on an expected utility. However, the complexity of these concepts lies in the measurement that economists try to make. A measurement that varies, always depending on the theory we use. Thus, as economic history shows, depending on each theory, we will measure value, as well as price, in one way or another.
Difference between value and price
Thus, in this sense, it should be noted that, as we said, we should not confuse both concepts. Well, as we showed in the introduction, they are not the same, in the same way that they do not refer to the same thing.
Therefore, we are going to see what is value and what is price, so that we can extract those characteristics, as well as the definition, that make the difference between these two concepts.
Therefore, value, as we said, has been defined in many ways, depending on the authors who have done it. However, among the most notorious meanings of the value concept, it is worth highlighting the fact that said value refers to the benefits, as well as the satisfaction obtained by the person who acquires said good or service.
Others define it as the utility that said product has for the consumer, also referring to that expected utility that we mentioned in previous paragraphs. For the economist Warren Buffett, one of the most authoritative voices of value investing , the difference is summed up in the following sentence:
Price is what you pay, value is what you get.
Characteristics of the value
Among the characteristics that define the concept, the following should be highlighted:
- It is a subjective and abstract concept.
- It is not dependent on laws such as supply and demand .
- Its amount depends on personal appreciation.
- It refers to a unilateral opinion.
- It does not usually present as much volatility as the price.
Therefore, the following characteristics try to better define what characteristics the concept presents.
On the other hand, the price, in the same way, has also been defined in different ways. However, price is a much easier concept to measure, since it has precise and quantitatively appreciable measurements.
Thus, we could define the price as the amount of money that is assigned to a certain product for sale. This amount, set by the market, the employer or the Government, represents the disbursement that must be made to obtain said product.
Thus, as with value, among the characteristics that define the concept, the following should be highlighted:
- It is an objective and tangible concept; can be easily measured.
- It depends on the law of supply and demand .
- Its amount depends on the interaction of bidders and applicants.
- It refers to a value that the plaintiff must pay to obtain the good or service.
- May present volatility.
- It can be altered by the Government.
Thus, unlike the value, the following characteristics shown, among others, try to define what characteristics the price presents.