Saturday, September 12, 2009

Price of everything and Value of Nothing

This was a very good book by Akerman and Heinzerling that I came across recently. It really opened my eyes to subtle nuances of price and value. Most of us judge the price of a good as an indicator of its value. But usually it is not the case.

I believe price, is the label that gets attached to a good to facilitate its sale or market transaction. Price of a good is only speculative. A shop keeper may sell a Persian rug for $5000. But come festive seasons the price may drop down to $4000 to pep up the sale. In this case does the value of the rug(say its aesthetics) diminishes in any manner? certainly it doesn't.

The value of a good is constant. At least it is constant for every individual .Values of goods tend to take considerable time to change. I may value a rug at lower value, and prefer a Walmart Mainstay's instead. After my value for a rug is determined by the function or utility it servers, say covering the bare floor or aesthetics.

Speaking of rugs it reminds of an interesting incident that happened recently. I wanted to purchase a new rug worth about $25 for our home. But my roomies took a vehement opposition to such outrageous luxury purchase. One mutual friend of our home even suggested that I was not sympathetic with my roomies and aspiring for a luxury world while my roomies are tethering in poverty and penury. Perhaps if we divide among all of us, it would only cost $5 each. But then the rug had no value for any of them. Naturally any price would be outrageous to them (as long as it doesn't come free of cost. In such case they wouldn't mind a rug in the living room).

Alas we live in a world wherein we check the price of everything,while dismiss the value of somethings to nothing.

1 comment:

Vishnuvardhanan Vijayakumar said...

what is it with the rug, if there is no place to it! hehe :)

Nice piece da. I remember reading in my final yr mgmt class - that price of a product is primarily governed by the market but like any there are exceptions to it.