price, amount of money for which a unit of goods or services is exchanged. Price is equivalent to market value and may or may not measure the intrinsic value of the goods or services to the buyer or seller. Most economists hold that, in the long run, price in a competitive market will equal the cost of production. Such a long-term equilibrium price is called the normal price. In the short run, however, the market price will be determined by supply and demand without reference to cost. The price of an individual item changes with time as well as in its relation to the prices of other goods. In general, prices are closely related to the amount of currency in circulation. If money is plentiful compared with the supply of goods, prices are high and money has less value and is “cheap”; when the opposite condition prevails, goods are cheap and money has greater value and is “dear.” The general price level may therefore be influenced by the action of government agencies (such as, in the United States, the Federal Reserve Board) that regulate the supply of currency. Because of the relation of the general price level to the business cycle, government action is usually designed to steer a middle course between the inflationary effects of a too plentiful currency and the deflationary effects of a glut of goods. Stabilization of prices would ensure that the dollar used in repaying a loan would have the same value as the dollar borrowed. The price level is an average of prices of a number of commodities that are important in the economy. It is generally converted into an index, with a particular year designated as the norm and given a value of 100. By comparing the value of an index at different dates, it is possible to ascertain whether prices are rising or falling. Common indexes used by U.S. government economists include the consumer price index and the wholesale price index. Historically, prices have tended to move upward; the wholesale price index, for example, more than doubled between 1930 and 1970. For the history of prices, classic works are Thomas Tooke, A History of Prices … . from 1793 to 1856 (6 vol., 1838–57; repr. 1928) and J. E. T. Rogers, A History of Agriculture and Prices in England (7 vol., 1866–1902; repr. 1963).
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