We all understand what price means — whatever we have to pay for it. We also know that the price has something to do with the cost and we often use the two words interchangeably. But it is not clear what precisely is the difference between them.
For example, when we buy a widget for $5 — the price — but it could very well be that its cost of production and distribution was above or below that price. But generally, on average the price of stuff closely tracks its cost. If the revenue obtained from sales is below cost, the product or the firm is forced out of the market.
Where does cost arise from? Here I argue that the cost of anything is ultimately the cost of the energy that went into its production and distribution. Therefore, prices fall when energy costs fall, and vice versa. Continue reading “Cost”
Atanu Dey : Life is a Random Draw 