NATURAL PRICE Meaning and
Definition
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The term "natural price" refers to the theoretical concept in economics that represents the equilibrium price of a good or service in a perfectly competitive market. It is also known as the long-run equilibrium price or the price at which demand equals supply over time.
The natural price is determined by various factors such as production costs, supply and demand dynamics, as well as the overall market conditions. It is the price that allows firms to cover their production costs and earn a normal profit in the long run. In other words, it is the price that ensures economic efficiency by balancing the interests of both buyers and sellers.
This concept of natural price was first introduced by classical economists such as Adam Smith and David Ricardo. According to them, the natural price is influenced by factors such as wages, raw material prices, technological advancements, and productivity levels. Changes in these factors can alter the natural price of a product, causing it to either increase or decrease.
Understanding the natural price is crucial for policymakers, businesses, and consumers as it helps in analyzing market trends and making informed decisions. It serves as a reference point for determining whether the current market price is under or overvalued, leading to adjustments in production and consumption patterns. However, it is important to note that in the real world, various factors, such as market imperfections or government interventions, may deviate the actual market price from the natural price.
Common Misspellings for NATURAL PRICE
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Etymology of NATURAL PRICE
The term "natural price" comes from the combination of the words "natural" and "price".
The word "natural" is derived from the Latin word "naturalis", meaning "of nature". In this context, it refers to something that is intrinsic or inherent, as opposed to something that is artificial or contrived.
The word "price" originated from the Latin word "pretium", which meant "value" or "reward". It later evolved to refer specifically to the amount of money or goods exchanged for a particular item or service.
Therefore, the etymology of "natural price" implies a concept of inherent or intrinsic value that is determined by the nature of the goods or services being exchanged, rather than by external factors such as supply and demand or market conditions. This term is often associated with classical economic theories, particularly those of Adam Smith and other early economists.
