"How much? (" How much? ")" Is a question familiar to all tourists. After announcing the amount demanded by the seller, we either pay or try to bring down the price, but we never wonder why we should pay so much. What are the functions of prices on the market and what are they responsible for?
The main elements of the market
A market economy as a combination of elements includes such key components as price and pricing.
Price definition
Price, no matter how simple and familiar it may seem, is actually a rather complicated economic concept. Within this category, there is an intersection of virtually all the main problems of the functioning and consistent development of the economy and society as such. First of all, this should be attributed to the creation and further sale of products, the establishment of the value of goods, the formation and distribution of such important macroeconomic indicators as national income and gross domestic product.
Price theory is a topic that has been studied for a long time. There are two main approaches to the study of this issue. According to one group of economists, the price of a commodity is nothing but a direct expression of its value. Specialists who take a different position argue that the price does not represent value at all, but rather expresses the amount of money that the consumer will pay for the goods he needs, which has a certain utility specific to the given buyer. Combining both approaches, we find that price is a monetary expression of the installed value of a certain product.
Pricing definition
Pricing, in turn, can be determined unambiguously - this is the process of pricing a unit of product or service. In science, it is customary to distinguish two main pricing systems:
- centralized (assumes government pricing of goods based on monetary circulation and production costs);
- market - our case (based on the mutual influence of supply and demand - the main market mechanisms).
Price features
Prices do not just exist in a market economy; they carry out clearly defined functions. The role of prices is closely connected with the action of the objective laws of the economy. The product price functions, although different, are nevertheless characterized by a certain commonality of properties, which, in turn, are inherent in price as an objective economic category. It is the functional that determines the place of price in the mechanism of the market system and determines the role that it will play in the market. The function of the price of a product is nothing but a manifestation of the active influence of this category on various economic processes.
Define and explain in detail each of the price functions.
Accounting
Within the framework of this function, prices are expressed in the form of banknotes recognized as official by a single opinion. That is, we can say that the accounting and measuring function expresses the volume of labor costs that are necessary for the production of a unit of production.
Prices that accurately reflect the value of the goods are crucial in the economy. They expressed the real labor costs for the production of this type of product. Based on these indicators, comparative economic analyzes are carried out, during which prices for the same product from different manufacturers are compared, and also such analyzes can help establish the optimal ratio between the elements of macro- and microeconomics.
An accounting and measuring function exists in any economic system, but the correspondence to reality and the real objectivity of this measurement directly depend on what the pricing mechanism is. As a function of the bid price, the measurements determine the value of production costs and the amount of recoverable profit.
If an entrepreneur wants to effectively confront competitors (otherwise he will simply go broke), then through prices he must constantly monitor costs and reduce them by conducting an analytical comparison with the situation in competitive firms. Thus, it is completely clear that the accounting and measuring function of prices is extremely important in the field of developing a marketing system, determining the company's policy in the field of prices and turnover.
The regulatory balance between supply and demand
It is prices in market conditions that are the main means of communication between producer and consumer, and therefore, supply and demand. Economic equilibrium can be achieved in two ways: by changing prices or by transforming supply and demand simultaneously. The implementation of the balance function in the form of a price shows the need for either a reduction in production, or, conversely, an increase in the output of each individual type of goods. However, one should be aware that it is possible to ensure the price balance of supply and demand, as well as in principle to establish the interaction of these two mechanisms, only in a free market.
In a market economy, it is prices that appear to be the main mechanism that can balance supply and demand. The balancing function and consumer demand prices for a certain type of goods are directly related to the monetary request made by the entrepreneur. This request is directly linked to the buyer's response. Moreover, the average price for one and the other side is just formed by the regulatory process. We see that in this respect it is much more true to speak not about the desire to balance prices from the outside, but about market self-regulation through the institution of equilibrium prices. The level of such a price helps to equalize supply and demand.
In variants of a non-market economy, the function of price regulation is imposed centrally. And it is precisely this artificiality that makes the prices approved by the state absolutely ineffective in terms of establishing an economic balance of supply and demand.
Distribution
If we present distribution as a superfunction, then we can say that 2 price functions are conditionally included in it: for centralized and market economies.
By name, it is easy to guess that a full-scale distribution function is embedded in the mechanism of the economic system, absolutely subordinate to the state without any possibility of a free market. By raising or lowering prices in a centralized economy, redistribution of personal incomes and profits of people, families, social classes, enterprises and even state entities occurs (do you recognize typical methods of socialism?).
In the Russian Soviet economic centralization, a rather interesting “trick” was invented: the following scheme was chosen as the best way to provide state loans to the population by artificial means. For sellers of manufactured goods, prices rose (at the expense of the state), and for buyers - decreased. Such unnatural relations have indeed been effective for quite some time, but we have to eliminate their conflicting consequences so far.
In conditions of limited state intervention, within the framework of a market economy, methods are being applied to establish excise taxes on certain types of goods (the main examples today are alcohol and tobacco products), a value-added tax and other taxation methods are also introduced. In this way, national income is redistributed, and this can have a decisive influence on the proportion of proportions in the country's economy.
Control
This clause answers the question of which price function is responsible for translating tangible objects into a cost equivalent. Control. Prices in this case are an instrument of accounting, further conservation and increase in the amount of monetary assets. The control function is characteristic of both market and non-market systems.
Planned
In this aspect, we are not talking about a planned economy, but about analytical actions within an individual company. Presentation of planning, distribution, exchange, consumption in cost terms is impossible without proper analysis, the main purpose of which is to study the impact of price characteristics on the planned processes. The price is taken as a basis in the preparation of economic forecasts, as well as public and private integrated programs.
Social
Price spikes in one way or another affect changes in the family budget, are removed from the list of possible ones, or, on the contrary, make certain types of goods, services, and public goods available. All these are social phenomena, and the function itself is therefore called social.
Stimulating
The price range invariably stimulates the interest of entrepreneurs in increasing production volumes and reducing costs in order to increase total profit. Rising prices may arise due to the production of modern up-to-date technologies and updated equipment, high-quality products, as well as more profitable for the production of interchangeable goods. Thus, by price ranking it is really possible to stimulate progress in the scientific and technical field, set a course towards cost savings, increase the quality level of products, and change the structure of interrelated production and consumption as a whole.
Price incentives are also possible for consumers in the form of discounts on products.
Rational distribution of production
The price mechanism produces a “transfusion” of capital investments in those sectors where the traditionally increased rate of return has already developed. The main engine of this moment is intersectoral competition. Based on the price factor in a free market, the manufacturer independently decides in which area of the economy to invest capital.
