Each product or service has its own value, which differs from the price indicated by the seller upon sale. Quite often, people use these two words as equal, regardless of their economic nature. What is the difference between these two seemingly similar concepts? Let's try to understand this in more detail.
Cost is similar to the concept of cost, that is those costs incurred by the manufacturer of the product for its manufacture. It can be monetary, time, material costs, each of which can be expressed in physical units, and then in monetary form. In addition, economists also distinguish use value, which reflects the individual preferences of the client. So, for each person there are objects that have a certain value or use value. It may not coincide with the monetary value of the costs incurred by the manufacturer for the manufacture of this or that thing. It should be noted that the cost of producing a product over a short period of time remains virtually unchanged.
Price is the amount of money for which the seller agrees to transfer his goods or services to the buyer. The price includes all costs that were incurred in the manufacture of products, as well as the amount of the margin that the seller expects to receive when selling the goods. The markup can be higher or lower depending on external conditions, for example, during seasonal sales, the spread of fashion for a particular product, the lack of demand for it, or purchasing in large quantities. We can say that price is a monetary expression of the value of an item, plus a share of the profit received by the seller.
Summarizing all of the above, we can conclude that the cost is the sum of the costs incurred by the enterprise for the production and sale of certain products. If you express these costs in monetary terms and add the percentage of profit that the seller wants to receive, you get the price of the product. In other words, value is only a part, a certain component of such an economic concept as the price of a commodity. And accordingly, it is not entirely correct to ask the question “how much does the product cost?”, Because in this case we are asking about the costs incurred by the manufacturer in its manufacture, not at all taking into account the “fat” that he plans to receive when selling it.
- Cost is only a part of the price of a product, moreover, it can be expressed both in monetary form and in physical units; the price is always expressed in the banknotes of the country;
- Cost expresses the expenditure of time, money, materials, energy resources required to manufacture products, while the price includes not only the monetary value of these costs, but also the percentage of profit received by the seller.