A digression on the prices of goods and services

In this accounting course, we use as an example a shop which buys and sells goods (for instance garments) without any manufacturing transformation on them.

The goods have a buying price and a selling price.

We make our profit from this difference, minus the charges to operate the firm of course.

It looks like a wonderful business: you buy garments at 50€ apiece and you sell them at 120€!

The garments seem to be "the same", but we must not overlook differences which do not show: for us, it is not the same for a pair of trousers to be in a warehouse somewhere near Shanghaï, or to be nicely displayed in a shop window down the street from where we live.


The same comment applies to train or airplane tickets. We are sometimes surprised, even irritated, when travelling from A to B with a ticket which cost us say 1500€, to discover that the chap sitting next to us paid only 500€!

We consider it strange that for the same service the airline company charges such different prices.

But it is a mistaken reasoning. (It stems from a materialistic view of the world where "a train ride from A to B is a train ride from A to B". But it is not!)

The services sold were quite different:

It may also have imposed to the cheaper ticket that a weekend separate the first leg from the return. (This case pertains to what's called yield management. We shall talk about it at the end of the course.)