What is the relationship between price, value and cost?

Definitions according to Cambridge Advanced Learner's Dictionary:

Price is defined as "the amount of money for which something is sold" (http://dictionary.cambridge.org/define.asp?key=62775&dict=CALD&topic=costs-expenses)


Value is "the amount of money which can be received for something" (http://dictionary.cambridge.org/define.asp?key=87706&dict=CALD&topic=costs-expenses)

Cost is "the amount of money needed to buy, do or make something" (http://dictionary.cambridge.org/dictionary/british/cost_1)

In the article "Cost, Value, and Price" (http://media.wiley.com/product_data/excerpt/36/04713498/0471349836.pdf) the relationship between the three terms is explained very well. In this article, I will try to summarize the most important facts.


The author clearly states that cost, value, and price are three separate and distinct concepts. However, unfortunately many business managers, consumers (buyers) confuse these concepts. He says:

"Cost and (selling) price differ. Selling price and value differ. And, finally, cost does not equal value."

Therefore, the terms cost, value, and price are not interchangeable.

In business there are always two perspectives:
From a seller's perspective, cost does not include profit, so a seller's selling price consists of cost plus profit, however measured and for whatever purpose:



From a buyer’s perspective, the price he pays to acquire an asset then becomes his cost, at least for purposes of financial accounting and tax accounting. Further, in the absence of compulsion, the value to the buyer at the moment of acquisition is the price he paid, which was his cost, again however cost is measured in terms of cost accounting concepts.





But almost immediately after the asset is acquired, the value is likely to change.