Price Theory
Economic theory asserts that in a free market economy the market price reflects interaction between supply and demand: the price is set so as to equate the quantity being supplied and that being demanded. In turn these quantities are determined by the marginal utility of the asset to different buyers and to different sellers. In reality, the price may be distorted by other factors, such as tax and other government regulations.
When a commodity is for sale at multiple locations, the Law of one price is generally believed to hold. This essentially states that the cost difference between the locations cannot be greater than that representing shipping, taxes, other distribution costs etc. In the case of the majority of consumer goods and services, the distribution costs are quite a high proportion of the overall price, so the law may not be very useful. In practice it may well make economic sense to offer a product or service for sale at a higher price in a wealthy area than in a deprived area as the marginal utility of the asset for purchasers will be higher in the former.
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Famous quotes containing the words price and/or theory:
“By all those, who are not much acquainted with him, he was considered infinitely below his level; he put no price upon himself, and consequently went at an undervalue; for the world is complaisant or dupe enough, to give every man the price he sets upon himself, provided it be not insolently and overbearingly demanded. It turns upon the manner of asking.”
—Philip Dormer Stanhope, 4th Earl Chesterfield (1694–1773)
“A theory of the middle class: that it is not to be determined by its financial situation but rather by its relation to government. That is, one could shade down from an actual ruling or governing class to a class hopelessly out of relation to government, thinking of gov’t as beyond its control, of itself as wholly controlled by gov’t. Somewhere in between and in gradations is the group that has the sense that gov’t exists for it, and shapes its consciousness accordingly.”
—Lionel Trilling (1905–1975)