"How much? ("How much?") is a question familiar to all tourists. After the announcement of the amount required by the seller, we either pay or try to bring down the price, but we never think about why we should pay so much. What functions do prices perform in the market and what are they responsible for?
Basic elements of the market
The market economy as a set of elements includes such key components as price and pricing.
Price definition
Price, no matter how simple and familiar it may seem, is actually quite a complex 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 cost 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. To study this issue, there istwo main approaches. According to one group of economists, the price of a commodity is nothing but the direct expression of its value. Specialists who take a different position argue that the price does not represent a cost at all, but rather expresses the amount of money that the consumer will pay for the product he needs, which has a certain utility specific to this buyer. Combining both approaches, we get that the price is the monetary expression of the established value of some product.
Definition of pricing
Pricing, in turn, can be unambiguously defined - this is the process of setting a price for 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 money circulation and production costs);
- market - our case (based on the mutual influence of supply and demand - the main market mechanisms).
Price functions
Prices do not just exist in a market economy, they perform well-defined functions. The role of prices is closely connected with the operation of the objective laws of economics. The functions of the price of products, 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 functionality 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 commodity is nothing but a manifestation of an activethe impact of this category on various economic processes.
Let's define and explain each of the price functions in detail.
Accounting and measuring
Within this function, prices are expressed in the form of banknotes recognized as official by consensus. That is, we can say that the accounting and measuring function expresses the amount of labor costs that are necessary to produce a unit of output.
Prices that accurately reflect the value of a good are crucial to the economy. They express 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 such analyzes can also help in establishing the optimal balance between elements of macro- and microeconomics.
Accounting and measuring function exists in any economic system, but the reality and the actual objectivity of this measurement directly depend on what the pricing mechanism is. As a function of the offer price, measurements determine the amount of production costs and the amount of profit to be made.
If an entrepreneur wants to effectively resist competitors (and otherwise he will simply go bankrupt), then through prices he must constantly control costs and reduce them, making an analytical comparison with the situation in competitive firms. Thus, it is quite clear thatthe accounting and measuring function of price is extremely important in the field of developing a marketing system, determining the company's policy in the field of prices and turnover.
Regulating the balance between supply and demand
It is the prices in the market that are the main means of communication between the producer and the 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 price shows the need to either reduce production, or, conversely, increase 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 are the main mechanism that can balance supply and demand. The balancing function and prices of the consumer's demand for a certain type of goods are directly related to the money demand made by the entrepreneur. This request is directly linked to the buyer's response. At the same time, the average price for one and the other side is precisely formed by the regulation process. We see that it is much more correct in this respect to speak not about the desire to balance prices from the outside, but about self-regulation of the market through the institution of an equilibrium price. The level of such a price helps to equalize supply and demand.
In non-market optionseconomy, the function of price regulation is imposed centrally. And it is precisely this artificiality that makes state-approved prices absolutely ineffective in terms of establishing an economic balance of supply and demand.
Distribution room
If we imagine the distribution as a superfunction, then we can say that it conditionally includes 2 price functions: for centralized and market economies.
It is easy to guess from the name that a full-scale distributive 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, there is a redistribution of personal income and profits of people, families, social strata, enterprises and even state subjects (recognize the typical methods of socialism?).
In the Russian Soviet economic centralization, a rather interesting "chip" was invented: the following scheme was chosen as the best way to provide state support to the population artificially. For sellers of manufactured goods, prices increased (at the expense of the state), and for buyers they decreased. Such unnatural relationships have indeed been effective for quite a long time, but we still have to eliminate their conflict consequences.
In conditions of limited state intervention, within the framework of a market economy, methods are being chosen for establishing excise taxes on certain types of goods (the main examples today arealcohol and tobacco products), value added tax and other forms of taxation are also introduced. In this way, the national income is redistributed, and this can have a decisive influence on the ratio of proportions in the country's economy.
Control room
This paragraph contains the answer to the question of which price function is responsible for converting material objects into a cost equivalent. Control. Prices in this case are a tool for accounting, further preservation 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 a separate company. Representation of planning, distribution, exchange, consumption in terms of value is impossible without proper analysis, the main purpose of which is to study the impact of price characteristics on planned processes. The price is also taken as a basis for economic forecasts, as well as public and private comprehensive programs.
Social
Price surges in one way or another affect changes in the family budget, remove from the list of possible or, on the contrary, make certain types of goods, services and public goods available. All these are social phenomena, and that is why the function itself is called social.
Stimulating
The price range invariably stimulates the interest of entrepreneurs in increasing production volumes and reducing costs within order to increase the overall profit. Price growth may occur due to the production of modern, up-to-date technologies and updated equipment, high-quality products, as well as interchangeable goods that are more profitable for production. Thus, price ranking can indeed stimulate progress in the scientific and technical field, set a course for cost savings, improve the quality level of products, and generally change the structure of interconnected production and consumption.
Price incentives are also possible for consumers in the form of product discounts.
Rational location of production
The price mechanism produces a "transfusion" of capital investments in those industries where traditionally increased profit margins have already been established. 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.
Informational
Price is a carrier of information about market structure and development, the mutual influence of supply and demand, the position of the world market in the context of its influence on the domestic market, also about the market situation from the point of view of the psychology of producers and, above all, consumers, quality products, enterprise pricing policy.
If you analyze stock market prices, you can quite accurately establish the prospects for dynamic changes not only in enterprises, but also in entire industries and the economygenerally. Information about price changes today is the basis for building forecasts for future transformations. In addition, it is the price that provides information (based on analysis) about competition, the degree of market monopolization, the amount of government intervention, and much more.
As a small summary, let's say that experts consider the stimulating function to be the most useful from an economic point of view. It is she who determines the general trends of market turnover and the prospects for economic growth in the field of management. However, if you fully define the price functions in a given market, you will be able to extract complete information about its structure and functioning. All functions are part of a complex market mechanism and should not be neglected.
