Difference between Price and Cost

Key difference: The key difference between the two is that, the term ‘price’ is defined as the amount that the customers pay for a product, whereas the term ‘cost’ is defined as the amount spent by a business in making a product.

Often, the terms ‘price’ and ‘cost’, in general, are used interchangeably. However, in economics, both the terms have different meaning, but are inter-related.

The term ‘price’ is defined as the actual amount of money that a client or a consumer has to waive in order to acquire a certain product or service. It is expressed in units, usually in the form of currency.

On the other hand, the term ‘cost’ is defined as the amount being paid to produce a product or a service before it is marketed or sold to the intended consumers. It is simply the amount of money involved in production, marketing and distribution.

In economics, theory suggests that in free market, the price of a commodity describes the relationship between supply and demand, meaning that the price of a commodity is set such that the quantity being supplied is equal to the quantity of demand of the given product.

Although, both price and cost involve the exchange of money, they are not synonyms. In terms of business, cost comes before price. As, ‘cost’ refers to the seller’s money involved to produce a good, ‘price’ refers to the money given to the seller for the product. The term, cost, here includes the capital, materials, bills, salaries and wages of workers, also the cost of putting up a product, which is why, everything is included when deciding the ‘cost’ of the product.

Price, on the other hand, is the point where supply and meets demand. It represents the value of the product itself. Also, the ‘price’ of a product is the combination of production costs and added profits for the seller. For the seller, the price is a future income, whereas the cost represents past expenses.

In terms of value, the value of ‘costs’ are lower as compared to the value of ‘price’. Here, the values of the profit are added to increase the value of the ‘price’. As, from a sellers point of view, cost is already the money spent, at the same time the price is an anticipated income as a method to regain back the costs made in production. Additionally, both, cost and price, are classified further such as the selling price, transaction price, bid price, or buying price, and fixed cost, variable cost, etc, respectively. Any other differences between the two terms can be read below.

Comparison between Price and Cost:

 

Price

Cost

Definition

The term ‘price’ is defined as the amount that the customers pay for a product.

The term ‘cost’ is defined as the amount spent by a business in making a product.

Product

It is amount of money given to buy a product.

It is the amount of money used to produce a product.

Implication

It implies the future acquisitions of the buyers.

It is the money spent in mainting the product.

Money used

Here, the money is used to gain something.

Here, the money is used in the production process of labor, capital, materials, wages, bills, and other transaction costs.

Value determined by

The ‘price’ is determined by adding the production costs and seller’s profit.

It is said to be a component of the price.

Value

The value is higher as compared to cost.

The value is lower as compared to price.

Demand

It is demanded from consumers.

It is demanded from sellers.

Image Courtesy: whatifspecialist.com, joshuakennon.com

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