Real prices and ideal prices: Encyclopedia II - Real prices and ideal prices - Examples of ideal prices

Real prices and ideal prices - Examples of ideal prices

An example of an ideal price would be the value of annual Gross Domestic Product. This aggregate price is an ideal price, derived through an accounting procedure from statistical observations of actual prices charged and paid, using principles of value equivalence, conserved/transferred value and newly created value. Included in this ideal aggregate price are many estimated and imputated prices reflecting the assumed monetary value of products and services. But there exist no real goods or services, or group of goods and services, to which that aggregate price exactly corresponds. At best one could say, that this aggregate price reflects a sum of money that "would buy" a certain group of products, assets and services. In other words, such a price does not correspond directly to real financial flows, but instead analytically groups components of those flows in order to make a valuation which corresponds to an economic concept, in this case value added.

Another example would be an equilibrium price calculated by an economist. This is a price which a type of product or asset would have, if supply and demand were balanced. This price does not exist in actual trading processes, it is only an ideal or theoretical price level, which at best is only approximated in the real world.

In accounting practice, ideal prices are used all the time. For example, when accountants have to value a stock of assets for tax or audit purposes, they apply rules and criteria to arrive at a price reflecting the cost or market-value of the stock. But this valuation is in truth only hypothetical, because it represents a price which the assets would have if they were traded or exchanged under assumed conditions. Yet, this ideal price may nevertheless influence a whole lot of transactions based on it.

Adapted from the Wikipedia article "Examples of ideal prices", under the G.N U Free Docmentation License. Please also see http://en.wikipedia.org/wiki