Language
Country/Area
No result found
Market Price and Economic Value: What's the Mysterious Link Between the Two?
In economics, economic value is a key concept that measures the benefits a good or service provides to economic agents. The perception of value to money is an assessment of whether financial resources are used effectively. Economic value is usually measured in monetary units, so its interpretation is "What is the maximum amount of money a person is willing and able to pay for a good or service?"
Economic value is not the same as market price, nor is it the same as market value. If a consumer is willing to purchase a product, it means that the consumer values the product higher than the market price.
Market price is the result of a commodity being traded in a competitive market and is usually affected by supply and demand. When economists observe economic transactions, they can extract the value functions of buyers and sellers. Buyers' expressed willingness to pay reflects their valuation of the good, and sellers reveal how much they would need to give up the good.
Changes in economic value reflect changes in social demand, which causes market prices to fluctuate with it all the time. The increased frequency of market transactions further demonstrates the ever-changing value of commodities.
Different schools in the field of economics have different evaluation standards for value, and these evaluation standards also constitute theoretical differences between the various schools.
In neoclassical economics, the value of a good or service is viewed as the price it would bring in an open and competitive market. This theory posits that supply and demand are the primary determinants of value. Different from this, classical economics believes that value is mainly determined by the labor or pain saved by consuming or using an item. This labor-based theory of value was further developed in Marx's economics.
Marx believed that the value of commodities is determined by the socially necessary labor time contained in them, while the exchange value in the market is unequal exchange based on labor.
Another factor that affects value assessment is psychological value or subjective value, which is driven by the consumer's personal preferences. Subjective value theory asserts that consumers' value to goods comes from the marginal utility they receive. For example, the overall value of water is higher than that of diamonds, but due to the abundant supply of water, its unit price is much lower than that of rare diamonds.
Therefore, we can see that consumers’ evaluation of goods is not purely based on their use value, but based on dynamic changes in supply and demand.
Currently, many economists have also proposed other value theories, such as monetary value theory and power value theory. The power value theory states that the price structure is not related to the "material" realm of production, but is independent of the power structure within society. Thus, in their view, economic value may not simply be an attribute of the goods themselves, but may be related to the power over those goods.
For government investment or spending proposals, the assessment of value for money is closely related to economic benefits. In the guidance of the British government, the assessment of value versus money emphasizes "maximization of economic benefits" to ensure the effective use of public resources.
In short, the relationship between market prices and economic value is a core issue in economics and deserves further thinking and research.
So, in today's rapidly changing economic environment, how should we understand the differences and connections between market prices and economic values?
