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Price tag

Price is the amount of payment or compensation one party gives to the other in exchange for a good or service. Price is affected by production cost and product demand. Prices can be determined by monopolists or imposed on businesses by market conditions.

In modern economy, price is usually expressed in some monetary unit. (for commodities, they are expressed in the currency per unit weight of the commodity, for example, euros per kilogram or Rand per kilogram.) Although prices can be expressed in terms of the number of other goods or services, such barter transactions are rare. Prices are sometimes quoted in the form of vouchers, such as trading stamps and airline miles. In some cases, such as in prisons, during hyperinflation and in some places during the Second World War, cigarettes have been used as currency. In the black market economy, barter is also relatively common.

In many financial transactions, it is customary to quote in other ways. The most obvious example is when pricing a loan, the cost will be expressed as a percentage of the interest rate. The total amount of interest payable depends on the credit risk, the amount of the loan and the term of the loan. Other examples can be found when pricing financial derivatives and other financial assets. For example, since the issuance of securities, the price of inflation linked government securities in some countries has been quoted as the real price divided by the factor representing inflation.

"Price" sometimes refers to the quantity of payment required by the seller of goods or services, rather than the final payment amount. The amount of the request is usually referred to as the asking price or selling price, while the actual payment may be referred to as the transaction price or transaction price. Similarly, a bid price or a bid price is the amount of payment provided by a buyer of a good or service, although it is more common in an asset or financial market than in a consumer market.

Economic price theory asserts that in free market economy, market price reflects the interaction between supply and demand: price setting should make the quantity of supply and demand equal to that of demand. In turn, these quantities are determined by the marginal utility of the asset to different buyers and different sellers. Supply and demand, as well as prices, may be affected by other factors, such as government subsidies or industrial collusion.

When a commodity is to be sold in more than one place, it is generally believed that a law of price holds. This essentially shows that the cost difference between locations cannot be greater than the cost difference representing transportation, taxes, other distribution costs, etc.