Our basic needs are simple, but our additional

individual wants are often very complex.

Commodities of different kinds satisfy our
wants in different ways. A banana, a bottle of
medicine and a textbook satisfy very different
wants. The banana cannot satisfy the same
wants as the textbook.
This characteristic of satisfying a want is known
in economics as its utility (kegunaan).
Utility, however, should not be confused with
usefulness (kegunaan).

For example, a submarine (kapal selam) may or

may not be useful in time of peace, but it
satisfies a want. Many nations want submarines.
Economists say that utility determines the
relationship between a consumer and a
commodity (barang keperluan).
Utility varies between different people and
between different nations. A vegetarian does not
want meat, but may rate the utility of bananas
very highly, while a meat-eater may prefer
steak.

A mountain-republic like Switzerland has little

interest in submarines, while maritime nations
rate them highly.
Utility varies not only in relation to individual
tastes and to geography, but also in relation to
time. In wartime, the utility of bombs is high,
and the utility of pianos is low. Utility is
therefore related to our decisions about
priorities in production particularly in a
centrally planned economy. The production of
pianos falls sharply in wartime.

The utility of a commodity is also related to the

quantity which is available to the consumer. If
paper (goods) is freely available, people will not
be so interested in buying too much of it. If
there is an excess (berlebihan) of paper, the
relative demand for paper will go down. We can
say that the utility of a commodity therefore
decreases as the consumers stock (persediaan)
of that commodity increases.

In economics, utility is a representation of

preferences (kesukaan) over some set of goods
and services. Preferences have a utility
representation so long as they are complete, and
continuous.

Utility is usually applied by economists in such

constructs as the indifference curve, which plot
the combination of commodities that an
individual or a society would accept to maintain
a given level of satisfaction. Individual utility
and social utility can be construed (ditafsirkan)
as the value of a utility function and a social
welfare function respectively (masing-masing).

In microeconomic theory, an indifference

curve is a graph showing different bundles
(buntelan) of goods between which a consumer
is indifferent (The quality or state of being
indifferent, or not making a difference). That is,
at each point on the curve, the consumer has no
preference for one bundle over another. One can
equivalently refer to each point on the
indifference curve as rendering (memberikan)
the same level of utility (satisfaction) for the
consumer.

A graph of indifference curves for an individual

consumer associated with different utility levels
is called an indifference map. Each point on
the curve represents the same elevation
(kenaikan).
The higher you go the greater the level of
utility. The non-satiation (puas) requirement
means that you will never reach the "top," or a
bliss (kebahagiaan) point,

The main use of indifference curves is in the

representation of potentially observable demand
patterns for individual consumers over
commodity bundles.
In finance, utility is applied to generate an
individual's price for an asset called the
indiffrence price. Utility functions are also
related to risk measures (ukuran).

QUANTIFYING UTILITY

It was recognized that utility (Desire or Want)

could not be measured or observed directly,
so economists devised (merencanakan) a
way to infer (kesimpulan) relative utilities
from observed choice. These 'revealed
(memperlihatkan) preferences', as they were
named by Paul Samuelson, were revealed in
people's willingness (kesanggupan) to
pay: for the fulfilment or satisfaction of his
desire

REFERENCES
Alfred Marshall. 1920. Principles of Economics. An
introductory Volume. 8th edition. London:
Macmillan.
Jonathan E. Ingersoll, Jr. Theory of Financial
Decision Making. Rowman and Littlefield, 1987. p.
21
J.O. Berger, Statistical Decision Theory and
Bayesian Analysis. Springer-Verlag 2nd ed. (1985)
ch. 2.

PRICE

In modern economies, prices are generally

expressed in units of some form of currency.
(For commodities, they are expressed as
currency per unit weight of the commodity, e.g.
euros per kilogram.) Prices are sometimes
quoted in terms of vouchers such as trading
stamps and air miles. In some circumstances,
cigarettes have been used as currency, for
example in prisons, in times of hyperinflation,
and in some places during World War 2.

INFLATION

In economics, inflation is a rise in the

general level of prices of goods and
services in an economy over a period
of time. When the general price level
rises, each unit of currency buys fewer
goods and services. Consequently,
inflation reflects a reduction in the
purchasing power per unit of money

In economics, hyperinflation occurs when a country

experiences very high, accelerating (cepat), and
"unstoppable" rates of inflation. In such a condition,
the general price level within an economy rapidly
increases as the currency quickly loses real value.
Hyperinflation is often associated with wars, aftermath,
sociopolitical upheavals (pergolakan), or other crises
that make it difficult for the government to maintain the
status quo (keadaan yang tetap) can be a direct trigger
of hyperinflation.

In a black market economy, barter is also

relatively common.
A black market or underground economy
is the market in which illegal goods are
traded. Due to the nature of the goods
traded, the market itself is forced to operate
outside the formal economy, supported by
the established state power.

The black market is distinct from the grey

market,
in
which
commodities
are
distributed through channels which, while
legal, are unofficial, unauthorized, or
unintended (tidak dirancang) by the original
manufacturer, and the white market , the
legal market for goods and services.
Worldwide, the underground economy is
estimated to have provided 1.8 billion
(milyar) jobs.

In many financial transactions, it is customary

(kebiasaan) to quote (menyebut) prices in other
ways. The most obvious example is in pricing a
loan, when the cost will be expressed as the
percentage rate of interest. The total amount of
interest payable depends upon credit risk, the
loan amount and the period of the loan. Other
examples can be found in pricing financial
assets.

PRICE THEORY

Economic theory asserts (menyatakan) that

in a free market economy the market price
reflects interaction between supply and
demand : the price is set as to equate
(menyamakan) the quantity being supplied
and
that
being
demanded.
In
turn
(perubahan) these quantities are determined
by the marginal utility of the asset to
different buyers and to different sellers. In
reality, the price may be distorted (diganggu)
by other factors, such as tax and other
government regulations.

In economics, the marginal utility of a good

or service is the gain (or loss) from an increase
(or decrease) in the consumption of that good
or service. Economists sometimes speak of a
law of diminishing marginal utility,
meaning that the first unit of consumption of a
good or service yields (hasil) more utility than
the second and subsequent (berikutnya) units,
with a continuing reduction for greater
amounts. The marginal decision rule states
that a good or service should be consumed at
a quantity at which the marginal utility is
equal to the marginal cost.

When a commodity is for sale at multiple locations,

the law of one price is generally believed to hold.
This essentially states that the cost difference between
the locations cannot be greater than shipping
(expedition), taxes, other distribution costs etc. In the
case of the majority of consumer goods and services,
distribution costs are quite a high proportion of the
overall price, so the law may not be very useful. In
practice it may well make economic sense to offer a
product or service for sale at a higher price in a wealthy
area than in a deprived (kekurangan) area.

The law of one price is an economic law

stated as: "In an efficient market , all
identical goods must have only one price."
The intuition for this law is that all sellers will
flock (berkerumun) to the highest price, and
all buyers to the lowest current market price.
In an efficient market the convergence
(pertemuan) on one price is instant.
Example: financial markets

PRICE AND VALUE

The paradox of value was observed and debated by

classical economists. Adam Smith described what is
now called the diamond water paradox: diamonds
command a higher price than water, yet water is
essential for life and diamonds are merely (hanya)
ornamentation (hiasan). Use value was supposed to
give some measure of usefulness, later refined
(diperhalus) as marginal benefit (which is marginal
utility counted in common units of value) while
exchange value was the measure of how much one
good was in terms (diistilahkan/disamakan) of another,
namely what is now called relative price .

PRICE AS PRODUCTIVE HUMAN

LABOUR TIME

Marxists assert (menyatakan) that value derives

(berasal) from the volume of socially necessary labour
time exerted (menggunakan) in the creation of an
object.
In fact, he admonished (menegur) the other classical
political economists (like Ricardo and Smith) for trying
to make this proof. Rather, for Marx, price equals the
cost of production (capital-cost and labor-costs) plus
the average rate of profit. So if the average rate of
profit (return on capital investment) is 22% then prices
would reflect cost-of-production plus 22%.

CONFUSION BETWEEN PRICES AND

COSTS OF PRODUCTION

Price is commonly confused with the notion of cost of

production, as in I paid a high cost for buying my new
television; but technically these are different concepts.
Price is what a buyer pays to acquire (memperoleh)
products from a seller. Cost of production concerns the
sellers investment (e.g., manufacturing expense) in the
product being exchanged (ditukar) with a buyer. For
marketing organizations seeking to make a profit, the
hope is that price will exceed (melampaui) cost of
production so that the organization can see financial
gain (keuntungan) from the transaction.

Finally, while pricing is a topic central to a company's

profitability, pricing decisions are not limited to forprofit companies. The behavior of non-profit
organizations, such as charities can be described as
setting prices. For instance, charities seeking to raise
money may set different target levels for donations
that reward donors with increases in status (e.g., name
in newsletter), gifts or other benefits. These targets can
be seen as prices if they are interpreted (tafsirkan) as
specifying a cost that must be paid by buyers (donors)
in order to obtain (memperoleh) something of value.

PRICE POINT

The price of an item is also called the price

point", especially where it refers to stores
that set a limited number of price points. For
example, Dollar General is a general store
store that sets price points only at even
amounts, such as exactly one, two, three,
five, or ten dollars. Other stores will have a
policy of setting most of their prices ending in
99 cents or pence.

Other stores (such as dollar stores, pound

stores, euro stores, 100-yen stores, and so
forth) only have a single price point ($1, 1,
1, 100), though in some cases this price
may purchase more than one of some very
small items. Price is relatively less than the
cost price.

REFERENCE
Milton Friedman, Price Theory.
George Stigler,Theory of Price.
Simon Clarke, Marx, marginalism, and
modern sociology: from Adam Smith to Max
Weber (London: The Macmillan Press, Ltd,
1982).
Makoto Itoh & Costas Lapavitsas, Political
Economy of Money and Finance.
Pierre Vilar, A history of gold and money.

Paul H. Walgenbach, Norman E. Dittrich and

Ernest I. Hanson, (1973), Financial
Accounting, New York: Harcourt Brace
Javonovich, Inc. Page 429.
Arthur OSullivan, Steven M. Sheffrin (2003).
Economics: Principles in action. Upper Saddle
River, New Jersey 07458: Pearson Prentice
Hall. pp.341, 404.