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In Chapter three of "The Seen, The Unseen, and The Unrealized", Bylund explains what prices communicate to consumers and the importance of prices to producers. The example of Adele selling apples is expanded on and it is used to show what must be considered when pricing a good or service for consumers. Adele must consider how much land, labor, resources, and time it will take to produce these apples. Bylund (2016, p. 32-33). If the price of any of these things goes up, the price of her apples will go up. However, she cannot just increase how much she sells them for without considering the value of them as well. Consumers are only willing to pay so much for a product. For me, I would be willing to pay $2.00 per apple. Anything more than that would cause me to hesitate. I would rather spend that money on something else, apples are not my favorite fruit and they are easily accessible. To someone who loves apples, they would most likely be willing to pay more per apple. If there was not an abundance of apples in an area, consumers would pay more because apples are scarce in the area.
I work at a boutique. We buy clothing, accessories, home decor, etc. wholesale. That means we buy it directly from the producer for a low price. We also pay them shipping. But the shipping costs depend on each company we order it from and how much we order. Once we get the items in, we price them depending on quality of items, how much the wholesale price was, how much the shipping cost was, how much labor and time it takes for us to have it ready to be put out for sale, how much the employees get paid for their time, how badly people want it, how easy it is to get it back in stock, and how much we think people will value it at. Many things must be considered when we price the items because we must still make a profit that feel is worth the labor and money we already spent to get it in. For example, we wholesale purchase a blouse for $17.00 each. They come in packs of six, meaning we get two of each size; small, medium, and large, or 3 extra large, 2 1XL, and 1 2XL. If we just buy one pack of blouses, the shipping cost of the package is usually between $12-$24, depending on the brand. We will have to unpackage the blouse, inspect for damages, cut tags off, hang them, steam them, add them to inventory, print barcodes, make our tags, and then put them out. On top of all of those things, we bring in a model to take pictures in the blouse. We then use these pictures for social media and for our website. Starting out at $17.00, we add between $2.00 and $4.00 depending on shipping. That brings us to roughly $20.00. If the employee makes $10.00 an hour, it takes us about 1.5 hours to unpackage, hang, steam, print barcodes, and take pictures in the item, meaning we must make at least $15.00 on the blouses. That brings us to $35 dollars. We could stop there, but we also must consider the electricity we used, the price of the distilled water we used to steam the blouse, and the profit we must make to be able to continue to grow our business. We would generally sell a blouse that cost us $17.00 for about $52.00. Our customers are willing to pay that price because the item is good quality and unique. If the employees are nice and helpful, the store is clean and organized well, and the items are not easily found at a lower price, consumers are usually willing to pay more for each item.
"Since Adele bears this uncertainty, which means she will suffer the loss if it doesn't work out, she's the entrepreneur."
Like Adele, our boutique still faces uncertainty. Unlike grocery stores, where food is a basic necessity, people do not need the clothes we sell. Because we are not guaranteed to sell each blouse at the markup price, we have to make up for that by price each item we carry just a little higher. As an entrepreneur, my boss must consider that some of the items she purchases will fail. We may have a dress or a blouse for months before someone buys it. Uncertainty is a big reason why we do not sell every item we purchase.
"We must look at the price system as such a mechanism for communicating information if we want to understand its real functions-" Hayek(1945 ,p. 526)
The price system is not just about money. it is about value, and proclaim how much an item is valued for. For instance, the price of gas continues to rise. people value going to work, hanging out with friends and family, and going places that make them happy. So even if the price of gas continues to rise, we may complain about it but at the end of the day we will continue to pay for it because we value other things more than the money we spend on gas. Another example would be glasses and contacts. I wear contacts everyday and I am willing to pay the price for them because I value clear vision and no headaches more than I value the money I pay for eye insurance, optometrist appointments, and the contacts and glasses I own.
Bylund, P. L. (2016). Chapter 3: What Prices Communicate. In Seen, the unseen, and the unrealized: How regulations affect our everyday lives (pp. 27-45). essay, Lexington Books.
Hayek, F. A. (1945) The Use of Knowledge in Society. American Economic Review, 35(4), 519-30.
