Price can be understood as the money or amount to be paid, in order to get something. Cost is the amount incurred in the production of goods, i.e. it is the money value of the resources involved in producing something. Conversely, value implies the utility of worth of the commodity of service for an individual.
A market is a place where millions of products and services offered for sale to the public, which are different size, shape, color, nature, functioning, and many other respects. The first thing that comes to our mind, whenever we go and buy a product is, what is the price of the good or service? How much does it cost? What is its value for us? There are slight and subtle differences between price, cost, and value, which is important to learn. Let’s have a look.
Content: Price Vs Cost Vs Value
|Basis for Comparison||Price||Cost||Value|
|Meaning||Price is the amount paid for acquiring any product or service.||Cost is the amount incurred in producing and maintaining something.||Value is the utility of a good or service.
|Ascertainment||Price is ascertained from the consumer's perspective.||Cost is ascertained from the producer's perspective.||Value is ascertained from the user's perspective.|
|Estimation||Through Policy||Through Fact||Through Opinion|
|Impact of variations in market||Prices of product increase or decrease.||Cost of inputs rise or fall.||Value remains unchanged.|
|Money||It can be calculated in terms of money.||It can also be calculated in monetary terms.||It is not calculated in terms of money.|
Definition of Price
Price is the amount of money paid by the buyer to the seller in exchange for any product and service. The amount charged by the seller for a product is known as its price, which includes cost and the profit margin. For example- If you buy a product for Rs 250, then it is the price of that product.
Definition of Cost
Cost is the amount incurred on the inputs like land, labour, capital, enterprise, etc. for producing any product. It is the amount of money spent by the company in the manufacturing of a product. For example- If a company manufactures shoes, then the expenses incurred on raw materials, salaries, rent, interest, taxes, duties, etc. determines the cost of the product.
Definition of Value
Value is the usefulness of any product to a customer. It can never be determined n terms of money and varies from customer to customer. For example- If you are going to a gym by spending 1000 bucks a month, the output seen is worth the expense, then it is the value that you create for a gym, regarding the service being offered there. Here the worth is its value.
Key Differences between Price, Cost and Value
- Price is what you pay for goods or services you acquire; Cost is the amount of inputs incurred in producing a product and Value is what goods or services pay you i.e. worth.
- Price is calculated in numerical terms, Cost is also calculated in numerical terms, but Value can never be calculated in numbers.
- Price is same for all the customers; Cost is also same for all the customers while the Value varies from customer to customer.
- Price is estimated through the price policy; cost is assessed on actual expenditure incurred on manufacturing a particular product, but the estimation of value is based on customer’s opinion.
- The Ups and downs in the market will affect the price and the cost of any product while value remains unaffected.
- The ascertainment of price is done with the view of the consumer; the cost is ascertained from producer’s view whereas the ascertainment of value is done from the user’s point of view.
Examples For Differentiation
- Price Vs Cost
If you purchase a brand new Car, then the amount you pay to the car seller for its acquisition is its Price while the amount invested in manufacturing the car is its Cost. Normally, the price of any goods or services is more than its cost because the price includes the profit margin.
- Cost Vs Value
If you are a watch manufacturer and produce millions of watch on a daily basis, then the cost of production is your prior concern and not the value of the product. You may try to achieve the economies of scale i.e. more production at less cost. Whereas in the case of the customer, the purpose for which the watch is purchased must be fulfilled irrespective of the cost incurred in its production. A customer must feel the worth of purchasing the watch in terms of its price.
- Value Vs Price
This can be explained easily with the popular example given by Prof. Adam Smith about water and diamond. Water is much important for us to survive still it is of low price, while the diamond is just used for ornamentation and nobody dies without it, is priced very high. The reason behind this is its value, as the value of water is much for us, it is available at a low price, while the value of a diamond is less for us. Therefore, it is priced very high.
After discussing a lot about these three terms, you must have found out the answers to the three questions asked at the beginning of this article. In simple words, Price is the money paid to the seller; Cost is the amount of inputs involved in the manufacturing of product and value is what product or service pay to the customer.