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Monetary value is the worth of a good or service in the market, determined by the price and utility. Producers set prices where marginal revenue equals marginal cost, while buyers receive value when the utility is higher than the cost. Opportunity cost is also involved in economic transactions.
Monetary value is an economic term that describes the value that a good or service brings to the open market when sold to a willing buyer. In a free market economy, price is the determining factor that drives the voluntary actions of individuals. Buyers and sellers are often less willing to participate in an economic transaction where there is no value. The monetary value of goods and services is also driven by the utility of value. This concept describes how much use a buyer will receive when purchasing a product.
Producers often look at the monetary value in incremental steps. For every increase in operating cost, they expect to receive a value at least equal to the increase in cost. Economically speaking, this results in producers setting prices where marginal revenue equals marginal cost. At this equilibrium point, firms will not receive more value by producing more goods or services. This additional production will result in costs increasing more than revenue, leading to lower profits and possibly sending the company into bankruptcy if it continues to operate in this manner.
Buyers receive a monetary value when the utility received from a good or service is higher than the cost they must pay. Buyers generally must spend income to purchase goods and services. If the monetary value received from the products purchased is greater than the income given, then more value is seen in these goods or services. Utility plays a role because the buyer expects the good or service to allow him or her to use the product in various ways. While some goods, such as a car, house, or clothing, may have somewhat obvious utility, the utility of services may be of a different range.
The utility or value of services is often shorter than that of physical goods. For example, a trip to an amusement park will usually last one day. Therefore, the monetary value is often lower than that of a service that can increase the value of a physical good, such as an addition to a home. For services that provide a longer utility, the value is higher to buyers, leading to an increase in the price of these items.
With value, there is an opportunity cost involved in purchasing goods and services. Opportunity cost is the value given when an individual buys one item over another, losing the value of the second item. For example, buying a computer instead of a satellite dish means that a person can send emails and surf the Internet, but not watch television channels offered through the satellite provider. An opportunity cost is generally present in most, if not all, economic transactions.
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