# Price (economy)

Digital price tag in retail

The price is made up of supply and demand on a market resulting and in monetary units paid in return for a certain unit of acquired products or services .

## General

The price therefore consists of the dimensions monetary unit per unit of measure. Price and value are often used in everyday language as synonyms, in the economy but they differ from each other. The result of an estimate is always a value and not a price. The estimated market value of a property is determined based on comparison properties and therefore remains abstract. The term price, on the other hand, is objective and concrete, it only manifests itself when it is actually sold . As long as the value is not realized, it only represents a price demand from the supplier or a price bid from the customer. The purchase price is therefore the price bid directed to the seller and the sales price is the price demand directed to the buyer. Only when the supplier and customer agree on a certain price in the negotiation process and conclude a sales contract does the realized purchase price arise . While the price represents the exchange value measured in monetary units of a specific exchange action between market participants , the value is understood to be the aggregated asking price of a group of market participants. The price therefore always includes the individual and subjective ideas about an asset .

## history

Since there has been money, there has also been a price. While in barter trade ( Latin permutatio ) the exchange value served as the equivalent, the purchase price ( Latin pretium ) replaced this measure of value in the purchase contract . In Roman law was Ulpian , a purchase contract without price According ineffective . The price and the material value had a uniform name ( Latin pretium ). The expression “pretium” denoted the remuneration that was set against something. The “pretium” was set either at the time of purchase or at the time of the valuation. For Gaius , the purchase price had to be “in sound money”, namely in a certain or at least determinable amount ( Latin pretium certum ). The cash ( Latin numerata pecunia ) was essential for the fulfillment of the sales contract. The principle established by the lawyer Iulius Paulus “no sales contract without a price” ( Latin nulla emptio sine pretio ) also applied. In the post-classical period the thought came to the fore that every product had its “ right price ” ( Latin iustum pretium ) and that any deviation from this price would have to be disapproved. Out of this world of ideas grew an innovation that Justinian I introduced by interpolation in two rescripts of the emperors Diocletian and Maximian . Thereafter, the seller had the right to terminate the purchase contract and to reclaim the purchased item.

The word price appeared in the Middle Ages in Germany for the first time in the middle of the 14th century, when in maritime law goods should be paid for according to their price (“prijse”). The spelling changed via “pryse” (1407) and “priidz” (1486) until the Austrian form “Preiß” appeared for the first time in a price comparison in 1663. The current spelling first appeared in Würzburg in 1669 in connection with salmon fishing.

In 1758, the physiocrat François Quesnay assumed that the price of agricultural products did not depend on the buyer or seller, but existed before. In the productive sector of agriculture , other factors determined the value and price of goods, precisely because only in this sector can new value be added. “The fundamental price of commodities is determined by the expenses or costs involved in their production or preparation; it becomes a loss if the goods are sold for less, at a good price, if they are sold for more, at inflationary prices, if they are sold so high above the cost of production that the people find it difficult to procure ". Quesnay saw the cost of production as the price basis For Friedrich Esaias Pufendorf , buying and selling came to perfection in 1772, as soon as only buyer and seller agreed on the thing and the price. The economist Adam Smith in his book The Prosperity of Nations (March 1776) defined the demand as “ those that the natural price ( cost price ; English natural price ) want to pay for a commodity "the. payment successes of their" interest , profits or wages natural price "within the meaning of Smith is quite the" the. " equilibrium price compare Smith. described the price mechanism as the "invisible hand" ( English invisible hand ). "When Jean-Baptiste Say had in 1803, the products of Natural Resources (agriculture) di e peculiarity that its price will not go as they would rarely, because the population is always at the same time pick up when the food to be lacking start, and because therefore the demand to the degree pick up, will rarer than the supply.

The Austrian ABGB of June 1811 sees the price as the definite value of a thing (Section 304 ABGB). For David Ricardo , labor formed the natural price in 1817, from which the market price deviated randomly and temporarily, because this was based on supply and demand. In the case of goods that can be multiplied at will, supply and demand determine the short-term market price, while the long-term price is determined in the long term and on average, the natural price by production costs (Adam Smith) or labor costs (David Ricardo). Smith and Ricardo are considered the founders of the classical price theory for homogeneous bulk goods ( commodities ). In 1866, Karl Marx viewed price as an exchange value expressed in money. “The price of goods is constantly above or below the value of the goods, and the value of the goods itself only exists in the up and down. Ed.] Of the prices of goods. Demand and supply [supply, i. Ed.] Constantly determine the prices of goods, never or only coincidentally ”. For John Stuart Mill in 1869 the price was the market value . In 1871, Hermann Roesler initially viewed the price as the result of speculation , because supply and demand could not explain the law of price formation . At a later point he understood the price of a commodity to be its current value in money.

In 1951, Heinrich von Stackelberg placed value higher than price in his hierarchy of terms . For him, price was the sum of money that is paid in the market for the unit of quantity of a good.

## species

When it comes to price perception, a distinction is made between absolute and relative prices. The absolute price is the exchange ratio between money and goods. The relative price expresses the exchange value of a good in units of another good. Inexpensive is relative to the quality of the product or service, while low-cost is relative to the competition. The purchase price includes the following price components in the price calculation : cost price , cost price and list price . The latter is the basis of the price labeling , whereby a possible fixed price must be taken into account. As an economic key figure, the price level reflects the prices of a certain shopping basket over time. If the price level rises, one speaks of inflation , if it falls, then there is deflation . Price changes can be made visible through a price index . While most goods and services have a fixed price that remains unaffected by inflation, most financial products have volatile prices.

The negative price is expressed mathematically with a negative number and is a price indication of . ${\ displaystyle <0}$

## Economic aspects

The price of a scarce good is greater than zero, that of a free good is zero. Prices are requested by the provider (“offer price”), offered by the customer (“demand price”) or accepted on the market (market price). The provider can demand his offer price and the customer his demand price, but this has not yet resulted in a market price. Rather, buyers or suppliers have to be found who accept this price. Consumers often agree to the seller's price demand without price negotiation (so-called implied action ). The price that leads to a market equilibrium between supply and demand in a free market between several suppliers and buyers is known as the market price or equilibrium price . With the production factors the price is called wages (with the production factor labor ), interest ( capital ) and rent ( land ). Further prices are the tariffs (for the energy supply ), rent (for the lease ), lease (for the lease ) or fees (for public companies ). The prices such as foreign exchange rates or share prices are also part of the prices. While the price for the buyers or owners cost represents, it is for the provider or seller of a revenue or earnings . In the case of labor, these are personnel costs / labor income , in the case of capital it is loan interest / credit interest , and in the case of soil it is the soil yield ( fruits from harvest and land use ).

The price is the object of knowledge of price theory . Quesnay's theory of value and price already knew the distinction between use value ( French valeur usuelle ) and exchange value ( French valeur vénale ), which Adam Smith also adopted.

The price is always the quotient of the monetary service equivalent in the numerator ( ) and the requested / offered service ( ) in the denominator: ${\ displaystyle P}$${\ displaystyle E}$${\ displaystyle L}$

${\ displaystyle P = {\ frac {\ text {E}} {\ text {L}}}}$.

If the power equivalent is increased with constant power, the price rises and vice versa. If the performance drops with a constant performance equivalent, the price also rises.

## Price functions

The price as a scarcity indicator

In the markets, the price always fulfills the following functions.

### Indicator function

The indicator function is also called scarcity function or signal function . In economics in particular, prices are viewed as indicators of the scarcity of goods. A rising price signals to the providers an increased demand and thus an attractive market and vice versa.

Example based on the price-sales volume function :

• It is assumed that the demand curve has shifted to the right; In other words, the demand for a product rises when the consumer's assessment of the benefits of advertising and / or price increases for substitutes increases.
• The price reacts more flexibly than the sales volume (price tags are written faster than new goods are ordered / produced). This means that the price rises to a higher level ( ) for the same quantity ( ).${\ displaystyle x0}$${\ displaystyle p1}$
Sales surplus

### Coordination function

The coordination function of the price is also called the compensation function. The households and businesses take advantage of the price, to be coordinated their individual plans.

Example based on the price-sales volume function:

• The price has risen due to the short-term adjustment to the increased demand .
• In the medium to long term, the companies react by expanding their range. However, they are guided by the price that is too high due to the short-term adjustment . There is an excess supply .
• The markets are no longer cleared by the excess supply , i. In other words, more goods are being offered than the buyers are willing to buy at this price.
• The price levels off in the area of ​​the new market equilibrium ( / ).${\ displaystyle X2}$${\ displaystyle p2}$
Price-sales volume function

### Allocation function

Prices direct the factors of production ( labor , land and capital ) into the economic sectors where they are most needed. The allocation function ensures companies use scarce resources efficiently. So it happened during the boom of the 1970s to the poaching of workers by companies which offered higher wages.

#### On the provider side

A higher price is a motivation for the company to produce the corresponding good. To this end, production factors are typically reallocated, i. That is, deducted from the production of other, lower-priced (since less demanded) goods and invested in the production of the current good.

The equilibrium price formed by supply and demand ensures, given appropriate assumptions and under the normative objectives of neoclassicalism , that the production factors present at a given point in time (e.g. labor) are used where they bring the greatest benefit (efficient allocation ). When prices are low, the company stops production.

Example based on the price-sales volume function:

• With the entry of new providers into the market / expansion of production, the supply curve shifts to the right.
• The shift is based on the price level . There is a surplus of supply. This excess supply causes prices to fall to the new equilibrium price .${\ displaystyle p2}$${\ displaystyle p3}$

#### On the demand side

Low prices are intended to encourage the customer to purchase a good. Pricing policy deals with the question of how buying incentives are set with the help of pricing .

### Selection function

The price level (the amount of the price) decides which social class comes into question as a buyer. The selection function of the price means that when the price level is high, there are only buyers left whose income is sufficient to pay ( luxury goods ). On the other hand, offers with low prices are only attractive for poorer groups of buyers ( inferior goods , cheap assortment ). In the case of companies, prices and sales volumes fall when demand falls . This results in losses for the inefficiently working companies. These either lead to a market shakeout , because these companies switch their production, have to file for bankruptcy or to structural crises in the sectors affected.

## Pricing

Theoretically, the formation of prices on a polypolistic free market takes place through the interaction of supply and demand, whereby it is assumed that there is market transparency . This model assumes that the price in a competitive market levels off in such a way that it balances supply and demand; the resulting price-quantity combination is the market equilibrium . If the supply exceeds the demand, the price falls. At this lower price, more consumers are willing to buy the product, but fewer suppliers are willing to offer the good. The demand increases and the supply decreases, so an equilibrium is reached again.

As the number of suppliers and buyers of a good decreases, the pricing deviates from the principles described above and becomes more unsteady. In a unilateral monopoly , the supplier or buyer alone determines the price, and in a bilateral monopoly , pricing is often arbitrary.

## Currency relations

The goods prices can be offered in different currencies ( euro , US dollar or yen ). The conversion of a good into the respective national currency can lead to a price advantage that makes the good particularly attractive to the customer. An arbitrage advantage can thus be realized. However, this advantage becomes smaller if the demand for goods from a certain currency area leads to a strong demand for foreign exchange and the price of the foreign exchange increases as a result.

The supplier / seller or buyer / buyer in a currency area (for example, the euro area ) can realize price advantages through different prime costs per region if the currency relation has been overridden. In these cases, there is no compensation for cost differences through national currencies.

For a company, the price is the most important means of control, alongside the production volume and the product quality / service quality . It is the central control element of the price policy , which has to deal strategically with the definition of a lower price limit ( minimum price ), while the upper price limit ( maximum price ) is usually set as part of a maximum price regulation through state market regulation .

In 1958, Erich Kosiol understood the price generally to mean any valuation of a unit of quantity as a price, which is why prices of all kinds also belong to the prices. The asking price of the provider is at all courses offer price , the bid price of the buyer will bid called. The upper price limit is where the consumer sees buying and not buying as equally advantageous. The lower price limit is so low that a company can barely exist as a marginal provider .

The business key figure of the price-performance ratio should indicate whether the consideration received for a price is appropriate. It results from the following formula:

${\ displaystyle {\ text {price-performance ratio}} = {\ frac {\ text {costs}} {\ text {scope of services}}}}$.

If the price for a certain haircut is 46 euros for one hairdresser, but 55 euros for another hairdresser with the same working hours and the same material costs, the price-performance ratio is more favorable with the first hairdresser.

## Components of a price

The price calculation mainly includes the following price components:

## Cost (minimum) and desirability (maximum)

Price development for regular petrol at the petrol station, 1991 to 2009, not adjusted for inflation. Unit price and as an average over 50 data records

The costs form the lower price limit if the business is to be managed without loss. For sales, however , the costs are only one component. In addition, there is the desire of a good in order to achieve profits that go beyond the imputed interest and the entrepreneur's wages (components of the cost price ).

The desirability of a good is its appreciation to transfer a certain amount of money to the provider. There are phases in the national economy when, for example, the expectations of the customer are impaired by a negative assessment of the future, or when the purchase of a good is postponed or completely abandoned. When goods are offered worldwide, then the exchange rate ratio comes into play. Therefore the currency relation must be part of the calculations .

## Special price designations in retail

Unit price
In the case of piece goods, the price for one piece in the smallest available quantity (here also piece price); for bulk goods sold in bulk, the price for a unit of quantity of a good such as liters .
total price
Usually related to a single invoice item and results from the unit price multiplied by the calculated amount. If it is related to the entire invoice , it corresponds to the sum of the total prices of the invoice items including other amounts such as sales tax , delivery , assembly .
Base price
The price per unit of measure. This is to be indicated in the immediate vicinity of the final price in an easily recognizable and clearly legible manner. The unit of quantity for the basic price is basically 1 kilogram, 1 liter, 1 cubic meter, 1 meter or 1 square meter of the goods. The basic price regulation requires the basic price regulation , standardized in § 2 price indication regulation .
List price
The price listed in a price list , product catalog, or menu .
Moon price
Collective term for strong deviations from the recommended retail price.
Net and gross price
A price without the statutory sales tax is referred to as the net price . If the sales tax to be paid is included, one speaks of the gross price (see also net / gross ).
Net sales price : As part of the surcharge calculation (which relates to the manufacture of products), net sales prices are determined.
Gross sales price : As part of the trade calculation (which is used in wholesale and retail), gross sales prices are determined.
Fancy price
A collective term for promotional, associations triggering price designations, often alluding to a specific occasion ("jubilee price", "basement price", "bargain price", "summer price", "fall price", "consolation price").
Price comparisons
Are widely used in the trade as a competitive instrument in two variants:
a) as a comparison of the manufacturer's RRP with its own (lower) price request or
b) as a comparison of your own old with your own new (lower) price demand for the same item. Price comparisons are to be distinguished from price comparisons . The latter represent a comparison of two or more price requests for identical goods or similar services from different providers.
Target price
Where a provisional price of products to their pricing , the pricing is not yet fixed safely.
Round and broken prices
( Threshold prices or English odd prices ) show sales prices as smooth or fractional amounts, e.g. B. € 350.00 or € 89.99. The decision for one or the other display mode plays a strategic role in the psychological price policy ( price optics ).
Street price
The approximate current average retail price to end users in shops and mail order companies. When a street price is mentioned in product comparisons, experience shows that only the lowest offers are taken into account.
Retail price
(UPE or EIA) of the retail from the manufacturer or importer recommended and addressed to the consumer retail price of a product, wherein EIAs can also be set higher for advertising purposes moon price . The consumer price recommendation : Do manufacturers or wholesalers give retailers or other traders non-binding resale prices , etc. U. summarized for several articles in a price list ( list prices ), on the hand that are not intended for consumer information , it is dealer price recommendations .

## Specialties

The price psychology plays particularly in trade and trade marketing a large role in all management decisions are reviewed psychologically purchase or selling prices as well as profit margins. There are many psychotic strategic and psycho tactical pricing options are available (prices range systematic copies, unit price, unit pricing, compensation calculation, Price Presentation, Price optics, discount price, price guarantee, price negotiation ( English make a bid policy , Awakening of price expectations)).

Price optimization refers to all processes that structure the existing prices in the production program of a manufacturer or in the range of a retailer in such a way that better earnings result for the supplier due to changed purchasing behavior .

Before a product is launched on the market, a pricing strategy should be established.

The price comparison is a (usually printed) comparison of prices empirically determined at a certain point in time for identical goods or similar services from different suppliers or buyers for the same purpose (sales or procurement purpose). Comparing sales prices, intended as a consumer policy instrument to improve the market (price) overview for consumers and to reduce their information costs, the locally or regionally compared prices for isolated goods are not able to exactly reflect the performance of the recorded suppliers in the trade, mainly because of the large number of them economic and methodological implications. After early attempts in the 1980s, the consumer organizations that compiled the price comparisons stopped this work. On the other hand , the online price comparisons for certain goods and services of online providers created on the Internet by price agencies and operators of (price) search engines have found widespread use and acceptance.

Legally, a price quotation in the trade is an invitation to (potential) customers to submit an offer to buy ( Latin invitatio ad offerendum ) → request to submit an offer .

## literature

• Niklas Luhmann : Prices. Chapter 1. In: The Economy of Society. 1988, ISBN 3-518-28752-4 , pp. 13-42.
• Eike Pies: Wages and Prices from 1300 to 2000 - Dependency and development over 7 centuries. E. and U. Brockhaus, Wuppertal 2003, ISBN 3-930132-23-0 .
• Eduardo Porter: The Price of Everything: Solving the Mystery of Why We Pay What We Do. Portfolio Hardcover, New York 2010, ISBN 978-1-59184-362-7 .
• Hans-Otto Schenk: The price comparison. Stuttgart 1981, ISBN 3-7910-0309-7 .
• Hans-Otto Schenk: Psychology in Commerce. 2nd edition, Munich-Vienna 2007, ISBN 978-3-486-58379-3 .
• Gabriele Braband: Electricity prices between private autonomy and state control. CH Beck, 2003, ISBN 3-406-51207-0 .

Wiktionary: Price  - explanations of meanings, word origins, synonyms, translations

## Individual evidence

1. ^ Matthias Thomas, Karl Werner Schulte: Handbook real estate portfolio management. 2007, p. 11.
2. Ulpian: Digest . 18, 1, 36.
3. ^ Heinrich Honsell : Quod interest in the bonae-fidei-iudicium. 1969, p. 14.
4. ^ Gaius: Institutions . 3, 141.
5. Iulius Paulus: Digest. 18, 1, 2.
6. Paul Jörs: Roman Law: Roman Private Law - Outline of Roman Civil Procedure Law. 1949, p. 229.
7. Pekka Katara: The French Lehngut in Middle Low German Monuments from 1300 to 1600. 1966, p. 298.
8. Anno 1663 - Codicis Austriaci ordine alphabetico compilati. In: Sebastian G. Herrenleben, Thomas I. Pöck (Hrsg.): Collection of Austrian laws and regulations: How such were issued and published from time to time…. Volume III, Eisfeld Leipzig 1748, p. 178 ( reader.digitale-sammlungen.de ; 37th article: Der Berg-Knappen Lohn. "Then you have provisions and lard in the following compared prices ...").
9. ^ François Quesnay: Tableau économique . 1758, p. 122.
10. ^ François Quesnay: L'Amis des Hommes ou Traité de la Population. 1756, p. 54.
11. ^ Friedrich Esaias Pufendorf: Draft of a Hanoverian land law. 1772, title 61 § 1.
12. Adam Smith: The Wealth of Nations. Volume I, 1776, p. 7.
13. Adam Smith: The Wealth of Nations. Volume IV, 1776, p. 339.
14. ^ Jean-Baptiste Say: Traité d'économie politique. Volume III, 1803, Chapter 8.
15. ^ David Ricardo: On the Principles of Political Economy and Taxation. 1817, p. 78 ff.
16. ^ Karl Marx: Results of the immediate production process. 1866, p. 27.
17. ^ Karl Marx: The capital . Volume III, MEW 25, 1865, p. 73.
18. John Stuart Mill: Principles of Political Economy. Volume I, 1869, p. 466.
19. Hermann Roesler: About the basic doctrines of the economics theory founded by Adam Smith. 1871, p. 210 ( books.google.de ).
20. Hermann Roesler: About the basic doctrines of the economics theory founded by Adam Smith. 1871, p. 222.
21. ^ Heinrich von Stackelberg: Basis of the theoretical economics. 1951, p. 19.
22. ^ Rudolf Richter: Price Theory. 1970, p. 12 ( books.google.de ).
23. ^ Herbert Jacob : Price Policy. 1971, p. 13 f. ( books.google.de ).
24. ^ Hermann Diller: Price Policy. 1985, p. 31 f. ( books.google.de ).
25. Hans-Otto Schenk: Psychology in the trade: decision bases for the trade marketing. 2007, p. 197 ( books.google.de ).
26. ^ Gabler Wirtschaftslexikon. Volume 4, Verlag Th. Gabler, 1984, Sp. 789.
27. Erich Kosiol: Critical analysis of the essential characteristics of the concept of costs. In: Erich Kosiol, Friedrich Schlieper (Hrsg.): Business economization through cost analysis, sales rationalization and up-and-coming education. 1958, p. 30.
28. Michael Kleinaltenkamp / Wulff Plinke (ed.): Market and Product Management. 2006, p. 644.
29. Hans-Otto Schenk : Price comparisons. In: Hermann Diller, Andreas Herrmann (Hrsg.): Handbuch Preispolitik. 2003, p. 795.
30. Hans-Otto Schenk: The price comparison. 1981, p. 7 ff.