DEFINE THE TERM PRICE? IN 1000 WORDS.

The term price is the quantity of payment
or compensation given by one party to another in return for goods or services.

In all modern economies, the
overwhelming majority of prices are quoted in (and the transactions involve) units of
some form of href="http://en.wikipedia.org/wiki/Currency">currency. Although in theory,
prices could be quoted as quantities of other goods or services this sort of barter
exchange is rarely seen.

Price can sometimes alternatively refer to the quantity of payment
requested by a seller of goods or services, rather than the
eventual payment amount. This requested amount is often called the asking price or
selling price, while the actual payment may be called the transaction price or traded
price. Likewise, the href="http://en.wikipedia.org/wiki/Bid_price">bid price or buying price is
the quantity of payment offered by a buyer of goods or services,
although this meaning is more common in asset or financial markets than in consumer
markets.

` Economists
sometimes define price in a more general or abstract sense to the widely understood
definition above. According to this view, price is defined as the ratio between the
quantity of goods that are exchanged for each other in a
transaction.

For example,
consider the case of two people exchanging goods, say 5 apples for 2 loaves of bread. An
economist might say that the price of apples was 2/5 = 0.4 loaves of bread. Likewise,
the price of bread would be 5/2 = 2.5 apples. Hence if we consider that currency is
simply another type of good like apples or bread, then this conception forms the general
case of the widely held definition outlined
above.

However it is far from
clear that this generalisation serves any useful purpose at all. As noted above, in all
real economies prices are virtually always quoted in (and transactions always involve)
units of currency. Hence, an alternative view is that the most basic and general
definition of price is that involving exchange of goods or services for money, and that
the exchange ratio between two goods is simply derived from the two individual
prices.

The exchange ratio is
sometimes referred to as the real price, while the price quoted in money referred to as
the nominal price.

From this
point of view, a price is similar to an href="http://en.wikipedia.org/wiki/Opportunity_cost">opportunity cost, that
is, what must be given up in exchange for the good or service that is being purchased.
For example, if x=1 and y=2, the relative price of x in terms of y is 2, and the price
of y in terms of x is 0.5.