Here's an example of Cost, Worth, and Value - using the definitions from my other post:
I have one piece of candy. It cost me 3¢, based on having purchased a bag of 100 for $3.00. But now I've found that this candy makes my teeth hurt, so it's worth practically nothing to me - until I discover the joy it brings to a child, making it worth 10¢ based on the enjoyment I derive from watching the child's face light up when I give them a piece of candy (that 10¢ figure is really hard to come by, and entirely subjective, by the way).
You, on the other hand, are seriously jonesing (20¢ worth!) for a piece of this candy, so you offer me 15¢ for it. We agree and a transaction occurs.
Now, let's "do the math":
Two things about this example:Value = Worth - Cost (for the sake of a simple transaction, we can substitute "Price" for "Cost" – though this is subject to question, later)Value (to me) = Price (15¢) - Worth (10¢) = 5¢ (Hence, I get 5¢ of Value from the transaction)Value (to you) = Worth (20¢) - Cost (15¢) = 5¢ (You also get 5¢ of Value from the transaction)
1) As promised, I want to address "Price" vs. "Cost". Price is pretty clear-cut. How many cents? But it turns out that money carries different Worth for different people, or even in different situations. It's why we have terms like "easy money" or "hard-earned dollar". A corporation that it not earning enough money to make its payroll, fund its maintenance plan, or support its growth objectives places a higher Worth on the dollars that it does earn - versus how it assigns Worth when the profits are coming easily and in abundance. People do the same thing. A popular gambit among sailors is for one who has managed his money well to offer another $10 in exchange for $20 at payday. Funny thing: that offer carries a lot more weight at the beginning of a long-overdue liberty call than it does out on the high seas with no port call in sight. So, while we may use Price to be reflective of Cost, there's no real absolute there.2) What about the child (that didn't get the candy)? What kind of ogre would sell the piece of candy for a 5¢ return instead of giving it to the child? Well - it's my example and (as I hope you figured out) I did it on purpose. So let's explore this...I got 5¢ more for the candy than what I would have paid to watch the child enjoy the candy.You got 5¢ more enjoyment from the candy than you had to pay to get it.10¢ in Value was created by this transaction. That value was enjoyed by you and me.But the kid? C'mon, Bill, what about the kid?!? Wouldn't you have gotten 10¢ in Value by just giving the child the candy?The child got nothing. No Value. But unless I promised the candy to the child (which would change the equation, by the way), they didn't lose any Value, either. But – I'm now clutching 15¢ in my hot little hand! That's enough to go and buy five more pieces of candy and dole them out to the little urchin - giving more Value to both the child and me than would have been available had I not conducted a little business with you first. Maybe not 5 times as much value (the kid will get sick of candy, probably, and will certainly attribute less Worth to the fifth piece less than the first).Total Value potential from this transaction (ignoring whatever you did to get the 15¢, and the whole candy retailer part of this): 5¢ for you, 50¢ for me, and who knows how much to the little candy muncher, who doesn't really "get" money, yet. All from a 3¢ piece of candy in my hand, 15¢ in yours, and a candy-loving kid.
