Have you ever thought about how manufacturers of goods are guided by setting certain prices for them? It is clear that they take into account the cost of their competitors' products, but after all, competitors must also be guided by something. We can say that their pricing policy depends on the reaction of consumers. Well, what determines the decisions of the buyer himself?
Labor theory of value
The first who tried to explain what determines the value of certain goods was none other than Adam Smith. He said that all the riches of the world were originally acquired not for silver and gold, but only for labor. It is very difficult to disagree with this. The labor theory of value was further developed in the works of V. Petty, D. Ricardo and, of course, K. Marx.
These economists believed that the value of any product created for market exchange depends on the labor expended necessary for itsmanufacturing. This is what determines the exchange proportions. At the same time, the work itself can be different. Not requiring qualifications and, on the contrary, demanding. Since the latter requires preliminary training, certain knowledge and skills, it is valued somewhat higher. This means that one hour of work of a specialist can be equated to several hours of a simple laborer. So, the labor theory of value says that the price of goods is ultimately determined by the socially necessary (average) expenditure of time. Is this explanation exhaustive? It turns out not!
Theory of marginal utility
Imagine that you have spent some time in the desert, and your life depends on a few sips of life-giving moisture. At the same time, you have a million dollars in cash with you. For this price, the merchant he met offers to buy a jug of clean cold water from him. Would you agree to make such an exchange? The answer is obvious. The non-labor theory of value, founded by O. Böhm-Bawerk, F. Wieser and K. Menger, says that the value of goods and services is determined not by labor costs, but by the economic psychology of the consumer, the buyer of useful things. If you think about it, this statement contains a certain amount of truth. Indeed, a person evaluates a certain good depending on his life circumstances. Moreover, the subjective cost of the same product decreases as it is purchased.
For example, in the heat, we are happy to buy ourselves ice cream, eating it, we,you may want to buy a second and even a third. But the fourth, fifth and sixth will no longer have the same value for us as the first. The labor theory of value cannot explain such behavior, but utility theory can easily cope with it.
Theory of supply and demand (neoclassical school)
Representatives of this trend, founded by the outstanding economist A. Marshall, saw one-sidedness in previous explanations of value and decided to combine the two previously described approaches. In their theory of the value of a commodity, there is a clear departure from attempts to find a single source of the price of products. From the point of view of A. Marshall, the discussion about how the cost is regulated - by costs or utility - is tantamount to a dispute about which blade (upper or lower) the scissors cut a sheet of paper with. Neoclassicists believe that the value of goods is determined through the relationship of the buyer and seller. Therefore, they have in the first place the factors of supply and demand. In other words, the value depends on the ratio of the costs of the producer (sellers) and the income of the consumer (buyer). This ratio is equal, and each side evaluates this value in its own way, taking into account the maximum possible concessions to each other.
