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Understanding Price vs Cost in Economics

The document explains the distinction between price and cost in economic terms, emphasizing that cost refers to the expenses incurred in producing a product, while price is the amount customers are willing to pay. It also defines several key economic concepts such as budget, demand, goal, indicators, planning, strategy, subsidy, and taxes, highlighting their roles in business and economics. Understanding these terms is essential for effective financial planning and decision-making.

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7 views9 pages

Understanding Price vs Cost in Economics

The document explains the distinction between price and cost in economic terms, emphasizing that cost refers to the expenses incurred in producing a product, while price is the amount customers are willing to pay. It also defines several key economic concepts such as budget, demand, goal, indicators, planning, strategy, subsidy, and taxes, highlighting their roles in business and economics. Understanding these terms is essential for effective financial planning and decision-making.

Uploaded by

qk893638
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd

Basic Economic

Terminologies
Price Vs Cost

Price and Cost are the terms that are frequently used and
mentioned in the context of revenue, i.e., sales.

They are used interchangeably in our day-to-day normal


conversation, but when it comes to economics or
business, each term takes on a separate meaning and
must not be perplexed with one another.
Cost:

Cost is typically the expense incurred for creating a product or service


a company sells. The cost to manufacture a product might include the
cost of raw materials used.

The amount of cost that goes into producing a product can directly
impact its price and profit earned from each sale.
Price

Price is the amount a customer is willing to pay for a product or


service. The difference between price paid and costs incurred is
profit.

If a customer pays $10 for a product that costs $6 to make and sell, the
company earns $4 in profit.
Budget:

A plan or estimate of expenditure for a future period.

Demand:

The want, need, or desire for a product combined with the evident
willingness and ability to pay.

Goal:

A general aim towards which to strive.


Indicators:

Identified and measured variables which help to show changes directly


and indirectly relevant to goals, objectives and targets.

Planning:

A process of organizing decisions and actions to achieve particular


ends, set within a policy.
Strategy:

A statement of the broad lines of action required for the pursuit of a


goal with an indication of the problems to be encountered and the
ways in which these problems can be dealt with.
Subsidy:

A payment made by the government with the object of reducing the


market price of a particular product, or of maintaining the income of the
producer.

The aim of a subsidy may be to sustain demand for a particular product; or


to protect a particular industry; or to ensure that those consumers,
especially the poor, who would otherwise not purchase a product or whose
demand for it would decline, maintain their previous level of consumption
Taxes:

Charges imposed by government on the income of persons (direct or


income tax) and on goods and services (indirect taxes). Taxes are used
for a variety of purposes.

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