Opportunity Cost
Unlimited wants limited resources. That pretty much sums up economics. It is the fundamental truth you will face every day in your own business.
Everything costs something. But it is not ten dollars or a thousand dollars. The cost is what else you could be doing with your time and resources. Most businesses have to choose between producing product A or product B. To produce product A they have to give up the opportunity of producing product B. Economists define the "opportunity cost" of any good or service as the value of all the other goods or services that we must give up in order to produce it.
We automatically make decisions based on 'opportunity cost' all the time. You can stay home and read a business article on the Internet or you can go for a walk in the woods. By doing one, you are giving up the opportunity of doing the other. To decide which to do you need to put a value on each activity. A numerical value makes it easier to make comparisons. In the business world, this numerical value is called 'money'. When a salesperson tells you the price of a product, you compare the price of the product with the value of the product. If the price is less than or equal to the value then you buy the product. The more information you have the easier it is to determine a value. In the example above, both may start with equal values. When you hear the weather forecast or learn the article was written by Herb Wexler the values may change.
You will find many high priced products have little or no value to you. Likewise, there are low-priced products that may have great value to you. This just means that the products are priced for people who have different needs than you do. You probably dance to the sound of a different flute.
When comparing prices and value you must also be aware of the time value of money. A dollar today is not worth the same as a dollar a year from now. If you can invest your money at 6% then a dollar today has a future value of $1.06 in one year. Likewise, a dollar a year from now has a present value of $0.94. When deciding which products your company will sell you need to understand both the concept of opportunity cost and the time value of money.
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