What is the external value?

The economy is a wide social science, often due to the nickname Dismal Science. One of the specific features that economists look at is the value that individuals place on goods and services. There are two types of economic value: internal and external. The external value is simply a value laid on items from external forces, such as market conditions or governmental economic policy.

In many ways, the value that the individual places on good or service is extremely difficult to define. Therefore, economists use the internal value and external value . The first describes the value that the individual places on goods and services from his own point of view. For example, the dress can have a high inner value if the consumer pays more than the market rate, but others will not. The external value comes from market conditions that allow Place price for products based on options outside consumer preferences.

Determination of external value from an economic point of view can be somewhat easy. For example, the difference between the price of the product and its internal value is equal to the outer part of the product. Although this definition is simplified, it precisely defines the value of good, although it cannot assess how the value of the product actually took place. In short, except market forces - such as materials, labor production and related costs for transfer of goods on the market - it is difficult to calculate the internal value of the product. The value placed on the consumer goods is what the free market controls in terms of supply and demand.

In the free market economy, individuals and businesses can operate in their own interests. If this happens, the value of the goods may change wildly, in both short and long -term periods. For example, a company can create a specific type of widget. Although it is not very fantastic in its external value, themselves, consumers are starting to place a highlightEye own value on the widget. Collectors will start buying and accumulating the widget, with prices to pay higher for each purchase of a widget because the internal value increases for every consumer.

Again, it is difficult for companies to define the external value of the product if the internal value is not known. Companies cannot always prices of goods or services in a manner that results in the highest profit. Companies must therefore carefully monitor trends and changes in the market that lead to changes in their own value. Thereafter, the external value changes are likely to occur, which can lead to higher prices and profits for society.