Real prices and ideal prices refers to a distinction between actual prices paid for products, services, assets and labour (the money that actually changes hands), and computed prices which are not actually charged or paid in market trade, although they may facilitate trade. The difference is between actual prices paid, and information about possible, potential or likely prices, or "average" price levels.
Ideal prices, expressed in money-units, can be "estimated", "theorized" or "imputed" for accounting, trading, marketing or calculation purposes, for example using the law of averages. Even if such prices therefore may not directly correspond to transactions involving actually traded products, assets or services, they can nevertheless provide "price signals" which influence economic behavior. For example, if statisticians publish aggregated price estimates about the economy as a whole, market actors are likely to respond to this price information, even if it is far from exact, based on a very large number of assumptions, and later revised. The release of new GDP data, for instance, often has an immediate effect on stock market activity, insofar as it is interpreted as an indicator of whether and how fast the market - and consequently the incomes generated by it - is growing or declining.
Ideal prices are typically prices that would apply in trade, if certain assumed conditions apply (and they may not).
The distinction is currently best known in the profession of auditing. It also has enormous significance for economic theory, and more specifically for econometric measurement and price theory; the main reason is that price data is very often the basis for making economic and policy decisions.
Read more about Real Prices And Ideal Prices: Karl Marx, Illustrations of Ideal Prices, Actual and Potential Prices, Valuation Criteria in Pricing, Are Prices Exact?, FASB and The Epistemology of Prices, The Economic Calculation Problem and Prices, Price Discovery and Information Asymmetry
Famous quotes containing the words real, prices and/or ideal:
“I find that principles have no real force except when one is well fed.”
—Mark Twain [Samuel Langhorne Clemens] (1835–1910)
“To expect to increase prices and then to maintain them at a higher level by means of a plan which must of necessity increase production while decreasing consumption is to fly in the face of an economic law as well established as any law of nature.”
—Calvin Coolidge (1872–1933)
“Plato—who may have understood better what forms the mind of man than do some of our contemporaries who want their children exposed only to “real” people and everyday events—knew what intellectual experience made for true humanity. He suggested that the future citizens of his ideal republic begin their literary education with the telling of myths, rather than with mere facts or so-called rational teachings.”
—Bruno Bettelheim (20th century)