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Value vs Price

 , April 01, 2018
Value is the maximum price an individual or organization is willing to pay for an asset, product, service or experience. Price is the minimum price that is actually available in a market.


Value is the total benefit that a customer can realize from a purchase. This is based on customer needs, preferences and perceptions. It is unique to each individual customer.


Price is set by supply and demand in a market. Alternatively, it is set by the pricing strategy of a firm.

Value ≥ Price

Generally speaking, value is greater than or equal to price. This is because a customer has no incentive to buy something if its price is higher than its value. A firm that sets prices higher than value will have poor sales volumes.

Value Determination

The primary factors that determine value are customer needs, preferences, brand recognition and brand image. Customers value things by how much they need them and prefer them. They also tend to value things based on reputation, as represented by a brand. For example, a customer may value a brand of coffee they perceive as a luxury higher than a brand of coffee they perceive as poor quality.

Price Determination

Price is largely based on supply and demand. Demand is based on the value of products and services to customers. Supply is based on competition in a market. In a perfect market, prices for commodities are set by a market price where supply equals demand. Firms can rise above this market price by offering high value products and services that aren't viewed as commodities.

Example #1

The value of drinking water to a thirsty person is extremely high as they require it for survival. However, the price may be quite low if there is an adequate supply in the area. After a person obtains enough water, the value of more water to the person drops as they no longer have need.

Example #2

A video game enthusiast values games by the number of hours of entertainment it brings them. A game they anticipate as being hundreds of hours of fun, has a high value. A game they perceive as boring after several hours has low value to them. Based on this, a video game enthusiast purchases a full price game based on its reputation for being many hours of fun. If their expectations of the game are fulfilled, they will consider it a good value and write a positive review. If their expectations aren't met, they will consider it a poor value and write a negative review.

Example #3

A firm values an industrial robot by how much output it can create on a production line. They estimate that a particular model will generate $1 million in net revenue. This is the value of the robot to the firm. If the price is significantly below the value, the firm may consider it as an investment in their annual budget.
Value vs Price
DefinitionThe maximum price an individual or organization is willing to pay.The actual price available on a market.
Determined byCustomer Needs
Customer Preferences
Customer Perceptions
Pricing Strategy


This is the complete list of articles we have written about economics.
Added Value
Advanced Economy
Adverse Selection
Animal Spirits
Attention Economics
Bargaining Power
Barriers To Entry
Behavioral Economics
Behavioral Finance
Bounded Growth
Bounded Rationality
Business Cluster
Business Value
Capital Flight
Capital Goods
Circular Economy
Club Theory
Comparative Advantage
Competitive Parity
Cost Competition
Critical Mass
Customary Pricing
Deadweight Loss
Division Of Labor
Economic Activity
Economic Advantage
Economic Bad
Economic Conditions
Economic Context
Economic Development
Economic Growth
Economic Infrastructure
Economic Problems
Economic Sector
Economic Systems
Economic Theories
Economies Of Density
Economies Of Scale
Experience Economy
Extreme Value Theory
Factors Of Production
Failure Demand
Fiscal Dominance
Free Market
Gains From Trade
Giffen Good
Income Distribution
Industrial Complex
Industrial Economy
Inferior Good
Information Asymmetry
Intangible Goods
Intangible Value
Knowledge Economy
Labor Productivity
Long Tail
Marginal Utility
Market Conditions
Market Economy
Market Failure
Market Forces
Market Power
Marketing Economics
Mean Regression
Media Economics
Merit Good
Middle Class
Monetary Policy
Plateau Effect
Predatory Pricing
Price Economics
Price Umbrella
Price War
Pricing Strategy
Profit Motive
Rational Choice Theory
Rent Seeking
Rule Of Three
Search Good
Service Economy
State Capitalism
Sticky Prices
Superior Goods
Supply Shock
Sustainable Economics
Switching Barriers
Threat Of Substitutes
Trade War
Traditional Economy
Unsought Goods
Value Creation
Veblen Goods
Zero-sum Game
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