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Pricing - Yerukhimovich IL

3. Principles of pricing

Price is one of the most difficult economic categories. For its correct understanding it is necessary to have a clear idea of ​​what lies at its basis, what objective laws act on the processes of pricing and price movements.

3.1. The concept of prices and pricing. Price functions

Price is a monetary expression of the value of a commodity. In the conditions of commodity production and circulation, the products of labor are produced and sold as goods. The price of each individual product does not necessarily coincide with the value: it can deviate up and down from the cost, depending on the supply and demand for the goods. In market fluctuations of prices around the value of the law of value - the economic law of commodity production. The law of value encourages commodity producers to reckon with socially necessary labor costs and to achieve their reduction, regulates the distribution of social labor and of means of production between branches of the national economy.

The law of value operates in an environment of competition, in which commodity producers, using new technology and technology, win, the most effective methods of organizing production. Thus, under the influence of the law of value, technical progress is taking place and there is a stratification of commodity producers: some are ruined as a result of competition, while others are enriched.

The law of value is the regulator of the process of production and circulation of goods and acts through the price mechanism, helping to establish a certain equilibrium in the correlation of prices for different types of goods and creating the basis for determining the boundary between economically advantageous and unprofitable.

There are several theories of value: the theory of labor value; Theory of supply and demand; Marginal utility theory.

The theory of labor value is divorced from the market and price, since the cost of socially necessary labor inputs, without regard to supply and demand, does not express anything.

According to the theory of supply and demand , the value of a commodity can only appear in price, that is, in monetary terms. Consequently, the price is determined by the ratio of demand and supply. This theory complements the theory of labor value, since it links it to the market, the price and the mechanism of its formation.

The essence of the theory of marginal utility lies in the fact that the value of a commodity depends on its marginal utility: the more goods of a particular type on the market, the less its value, and vice versa. If the quantity of any product is less than the demand for it, its value increases. With an increase in the supply of a given commodity, its value drops to marginal utility. Consequently, the theory of marginal utility is based on the theory of supply and demand.

During the period of the administrative-command system of management, pricing was based on the theory of labor value, therefore in the formation of prices there was subjectivity and voluntarism.

In a market economy, the pricing theory is based on the theory of alternative value, which unites the considered theories into a single value theory. The essence of it is this: before you buy the goods, the buyer is faced with the need to make an alternative decision, which goods to choose from the many offered on the market. Having bought one of them, he refuses others. The cost of the purchased goods is an alternative cost. The buyer evaluates the goods in terms of their interests and opportunities.

At the same time, alternative cost affects the supply of this product, because the commodity producer for the sake of organizing its production and profit-making refused other benefits.

Thus, alternative cost is formed in the market in competitive struggle depending on demand and at the same time influences production and, therefore, on supply.

The price should reflect the interests of both producers and consumers of goods: the producer - cost recovery with a certain profitability, and the consumer - the economic benefit from the operation of this product.

The price performs various economic functions: accounting, distribution, incentive and regulating.

The accounting function ensures the equivalence of the exchange, that is, the proceeds from the sale of products (works, services), with other things being equal, ensure reimbursement of costs for production and sale, as well as the formation of profits in an amount that allows to improve and develop production and improve the living standards of workers. This function is always performed. Knowing what each product costs, you can use the prices to measure its various types, as well as express any amount of products and services in monetary terms.

Distributive (or redistributive) function is to distribute income between producers and consumers. If the price of the commodity is higher than its value, then the manufacturer reimburses its costs and profits. If the price is lower than the cost, then the producer works at a loss. The consumer, using products, also has different economic benefits.

Hence, the distributive function of price expresses the direction of distribution - in favor of the manufacturer or consumer. In other words, as a result of the deviation of prices from value, national income is redistributed between accumulation and consumption. The tasks of redistributing the national income for certain economic, social or political purposes can successfully solve the tax system. Therefore, it is necessary to gradually release prices from this function and transfer it to the tax system.

The effect of the distributive price function is illustrated in the following conditional example. Let's say that 4 tons of rolled metal are used for making one machine. The price of 1 ton of hire is 450 UAH., Its profitability is 20%. Then, on the basis of the formulas U = Cn + np;

Rpr = Pr / Cn * 100% the cost of manufacturing and selling 1 ton of rolled products will be 375 UAH., And the profit from the sale - 75 UAH.

The price of one car is 2600 UAH., Including the cost price - 2300 UAH., And the profit from the sale - 300 UAH. The cost of production and marketing of one machine is derived from the following considerations. The manufacture of the machine consumes metal for the amount of 1800 UAH. (450 • 4); Waste products are 1 ton. Therefore, at a waste price of 100 UAH. For 1 ton material costs after deduction of waste are 1700 UAH. The remaining costs associated with the manufacture and sale of one machine - 600 UAH. The total profit for the production of 4 tons of rolled metal and the production of one machine is 600 UAH. (75 • 4 + 300). The profit received was distributed equally between the producer (ferrous metallurgy) and the consumer (machine building).

Let us now imagine that due to the current conjuncture in the ferrous metal market, rental prices have increased, and machine prices have not changed.

Let the price of 1 ton of rolled metal increased to 480 UAH., The total cost price remained at the same level, and the profit from sales increased to 105 UAH. At the same time, the price of one car remained UAH 2,600, and the cost of manufacturing and marketing increased to UAH 2,420. (480 4 - 100 1 + 600), and the profit from sales decreased to 180 UAH. The total amount of profit is the same 600 UAH. (105 • 4 +180) - was distributed between the producer and the consumer in a ratio of 70: 30%. Thus, there was a redistribution of the price, and consequently, profits in favor of metallurgy.

Stimulating function . Its essence lies in the fact that higher prices stimulate enterprises to produce progressive and scarce products, and lowered ones to the removal of obsolete products.

The regulating function is expressed in the balancing of supply and demand. If there is no possibility to achieve the correspondence of demand and supply with a change in the volume of production or this is inappropriate, a price instrument is used. In mechanical engineering it is applied both to the means of production (for example, lower prices for agricultural machinery) and to consumer durable goods (for example, higher prices for cars).

Price functions are interrelated and form a single system, although their effect is largely overlapping, which explains the difficulties of practical pricing.