Friday, August 15, 2008

What is Value?

Value from an economic perspective (and my personal point of view) is the cost of a product that is equivalent to the cost of manufaturing (including the cost of transporting the product, cost of research and sales cost) plus a reasonable profit to the manufacturer. The manufactured product must first meet the specifications of the user otherwise quality issues may set in. The cost of manufacturing must be subjected to market competitive force. A product of value is functional and appropriately priced. There must not be any transfer payment, ie whern money is transfered without work done. Gambling is an illustration for transfer payment.

The price of a product is a temporary indication of the worth of that product considering the market forces at that particular point in time. It can be above and below its value. A discount is a situation where the price may be* below its value while a premium is a situation where the price could be above its value. Value of a product usually depreciates over time and through usage. There are 3 scenarios where value increases over time:- (i) scarcity (ii) complementary value has increase (iii) inflation. A premium price is paid to a product if the satisfaction derived from the consumption of a unit of that product is high. But that premium price paid may not create value for money. Price of a product is usually distorted by marketing ploy and sales tactics. A person's ego is affected by the satisfaction derived from the purchase of that product. Value can also be evaluated by the rate of return from the purchase of an investment.

*Note: I use the words "may be" because many a times, merchants will use the word discount freely when in fact the price covers the cost of production, reasonable profit and premium dollars.

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