Price is not necessarily a reflection of value.

Price is not necessarily a reflection of value.

11:00-11:30

Ever since the start of free trade and a democracy there has been the concept of getting a larger quantity with more money and vice versa. However, in some cases the concept of quality over quantity is also very effective. In a monopoly, prices of specific product can skyrocket as in the case of certain commodities such as gasoline. On the other hands, when there is competition for one product such as clothing or electronics the opposite occurs, price depreciation. In economic terms, value is often associated with price but this is not the case. Value is a subjective concept that depends on the individual’s demographic situation and it can differ based on fashion, place and economic situations. Although pricing is used to indicate value it is not an accurate measure of value in all cases.

First consider when price is not a reflection of value. A prime example of this is the current housing bubble in the United States and Europe. In many cases the price of the house does not indicate the value of the home. The value can depend on many factors such as what facilities it has, the land area, and proximity to local resources such as shopping, entertainment and transport facilities. An expensive house in a rural snow covered regions of the northeastern United States may be worth millions because of its proximity to the ocean or a scenic view. However, despite the price tag, it has low value because it may not have public transportation, shopping, entertainment or recreational facilities near by. It is also has low value because it costs a lot to maintain the house in this geographical location due to severe winter snow-storms such as plowing and heating oil. On the other hand, if there was a house built in the 1800s and was in the heart of downtown Los Angeles it would be worth millions but it has value. This is because it is proximal major financial districts and venues such as the hospital, library, school and public meeting places. So both these examples comply to the old adage the best house in the worst location has less value than the best house in a good location. Another example, is the salaries that teachers and college professors get for their services. Most teachers and professors are paid low salaries but they give valuable educational services to students across their communities. This shows that the valuable education is not in par with the salaries they are getting.

On the other hand, price is sometimes a good measure of value. For example, an expensive toy made in China by Mattel or Fisher & Paykel sold in KB toys may be pricy but has good quality compared to the toy made in China sold in a dollar store. The toy from KB toys may have better durability and longevity than the one from the dollar store. Many toys from cheap stores have been at risk for lead poisoning hazards than those from the big box stores indicating that price may reflect value. Another example, is the cost of a car. A regular car with basic features can be a fraction of the cost of a luxury car but there is a reason for that. The regular car, such as India’s Tata Nano is a 4 door sedan that is very small and affordable at a price of 1 lach or $100. However, the Tata Nano has very meager safety standards and does not have airbags or seat belt restraints to protect the passengers bodily collision in the case of an accident. On the other hand, a luxury car say Mercedes Benz has good fuel economy, luxury facilites and safety features. So it is evident that, higher the price is reflecting higher value and showing that one can get more bang for their buck.

In all, the concept of value associated with price is subjective and depends on the circumstances. A teacher getting a mediocre annual salary, say 30K, is not an accurate measure of value because the teacher is passing down knowledge to the next generation to contribute to the job market. On the other hand, an expensive say a car or toy has higher price and value because more thought and implementation is put in to prevent safety hazards.