When you want to buy something, you check how much it costs to decide if you can afford it. The price is the amount you have to pay for a given good or service. But how is it determined?

 

How are the prices of goods determined?

Goods are made from different materials. Some of them are more expensive and valuable because they are found less often than others – for example, gold and silver.

Others are of higher quality because they are made from natural materials and are stronger or more comfortable. For example, your T-shirt will be softer and more pleasant to wear, but also more expensive, if it is made of cotton rather than synthetic material.

When a good uses higher quality materials or requires special skills to make it, it can be much more expensive than other similar goods. For example, sneakers from a famous brand - a special sign or name that indicates who the manufacturer is. Often such goods are fashionable and many people like them and buy them at the moment.

In addition to the materials, the price also depends on people’s work, related to the time, effort and skills needed to produce the goods. In your opinion, which would take more time and skills to make - a tablet or a workbook?

Some goods may cost more than others because they are very rare - for example, a painting by a great artist. There is no other like it in the world, which makes it very valuable.

By the time the goods reach the store from the manufacturer, they sometimes travel a long way, which also increases their price. For example, to bring the milk to the store, the truck has used fuel, and the driver has worked and received remuneration. These costs are included in the price at which the store buys the milk. To this, an additional amount called a markup is added. This way, the store receives money with which electricity bills, rent, workers' salaries and business profits are paid. Some goods are more in demand or are more special, so they may have a higher markup.

 

How are prices for services determined?

This is sometimes more difficult than for goods. Why, for example, does a child's haircut cost less than a mother's haircut?

The price of a service depends on how much time and effort it takes, as well as the experience of the person providing it. The mother's hairstyle will take much longer. In addition, if the hairdresser is respected and popular because they are very skilled, they can set higher prices for their services. And if they use more expensive and quality products, this will also affect the price. The more special and difficult a service is, the more it will cost.

It is important where the service is provided. If the hairdresser is in a big city, their expenses will be higher, so their prices will be higher. However, in large cities there are many hairdressing salons, which may cause some of them to lower their prices in order to attract more customers.

In the prices of both goods and services, entrepreneurs include taxes that they owe to the state.

 

Price and value

When you buy something, it is good to pay attention not only to the price, but also to ask yourself what its value is - how useful and important it is to you.

Often, an expensive product is of better quality because better materials were used to make it. But a high price does not always mean high quality. For example, the product may be in great demand or be from a well-known brand and therefore be more expensive. Often, well-known brands offer better quality or safer products, but this is not obligatory.

Sometimes something can have great value to you, no matter what its price is. For example, your favourite toy may not cost much, but it is valuable to you because it was a gift from your best friend.

Regardless of its price, if something is useless it has no value. So, before you buy something, think about whether you need it and whether it is worth it.