What Are the Differences Between Market Price, Market Value and Market Cost?

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Goods on the market have a unique market price, market value and market cost. Because the words price, value and cost all have a similar meaning, many people think the market price, the market value and the market cost of an item are the same. Actually, these measures are quite different.

Market Price

There are two different measures of market price: what a good is bought for and sold for on the market. The selling price is the retail price of the good; this is also known as the offering price. The buying price is the dollar amount consumers are willing to pay for the good; this is also known as the bidding price. The difference between the buying and the selling price is known as the margin or the spread. For example, the retail price on a car is $15,000 and you offer the car dealer $12,000 for this car: the offering price is $15,000, the bidding price is $12,000 and the margin is $3,000. To get a true picture of market prices, you have to know the big picture, encompassing all of the dealers and all of the buyers on the market of that particular car.

Market Value

The market value of a good is the agreed upon price. In other words, the market value measures the price that buyers are willing to buy for and sellers are willing to sell for in a competitive market. Using the car example from before, if you found the equilibrium price by measuring the price that all dealers are willing to sell the car for and all buyers are willing to buy the car for, you have the market value of that car.

Market Cost

The market cost is the average cost of a good or similar goods in a particular market. If an item is sold above market cost, it is sold for a higher than average price. This does not mean that if a consumer pays a higher price for quality, he is paying higher than market cost; similar goods must be of similar quality. For example, a desktop computer with 500 GB of memory and standard features costs $600 from Dealer A, and this is the standard price that consumers pay for a computer with this amount of memory and these features. If another consumer purchases the same computer for $3,000 from Dealer B, she is paying above market cost.

Differences

When measuring market price, you have two measures: the seller's market price and the buyer's market price. Market value and market cost are usually somewhere in the middle of the seller's market price and the buyer's market price. Market value is a common price measure that depicts the actual value of a good. Market prices are also common price measures, but these measures depict what the good is worth to the seller and what it is worth to the buyer. Market cost is a less common price measure, it is more of a comparative measure.

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