system
Given the following post, respond as if you're commenting on Reddit:
human
(As an example) How is it decided, the price of cocaine?

I am not an economist, but come from more of a philosophy background. I am sorry if I am having trouble articulating this. My question takes, first, the illicit substance cocaine as its example. Whether you pay 50 or 150 dollars per gram of cocaine, what, ultimately, determines that price? Is it that we have commonly judged the experience of taking the drug is worth that amount of money? Or are we simply paying for what it costs to produce, etc. as well as profit from it? I see at least these two factors, sort of "wish" and "necessity," entering into the price -- since it has been determined that raising the price of cocaine reduces usage, demonstrating that people have a sense of value for money when they purchase it, and also tend not to overspend. I also think there is an interesting corollary in the sense of it being a quasi-Veblen good at a conventional price point, if I have understood this concept, but then I am sure if it could be made cheaper, it probably would be.

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The question is less salient if we take instead, for instance an Xbox. I think most people would say $500 is high for a game console, and $300 affordable. There is more complexity in the supply chain here, meaning that there are more factors determining what would be a "necessary" price, but have we as consumers essentially pulled prices out of thin air (or, what we can reasonably afford with our purchasing power) when it comes to the question of what is good pricing? Probably, there is some relation between our "ideal price" and the de facto price of a product, based on what is usual; I am used to paying $8 or more for lunch, and view that as basically fair, which when deconstructed is quite strange, and when I was younger I thought it was expensive.

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I guess that I am looking for a sort of ontology of "market value" which goes beyond "supply and demand" and deals more specifically with individual relations. I think that possibly, the sense of "fairness" in a transaction (not always at hand) extends from a sensed commonality between these real and imaginary factors I have outlined, pointing actually to the currency in question moving "efficiently and correctly" from an altruistic perspective, rather than just marking the so-called correct price.

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Is there any work in economics which deals with this kind of question, as much as I have failed to distill from my thoughts this higher distinction which agitates them?
gpt
It's really just supply and demand.

Cost is not *that* relevant, if supply and demand is as such that the price is below cost, you don't produce that good, but that's about it (well, at least in a basic sense).

Now you have to make a distinction between aggregate supply and demand and individual supply and demand. Aggregate supply/demand is what determines what the market rate is, let's say just for the sake of having an example, 50$ per gram of coke.

Your personal demand on the other hand determines if *you* buy that good. That's where for example your personal sense of what's a "fair price" comes in. If you think 50$/gram is adequate, you buy that good, and if you don't, you don't.

What makes up the aggregate demand really is just lots and lots of personal demand curves, same with supply, to the point where aggregate supply/demand is at a point where the highest amount of total "value" (goods/price) changes hands.

>pointing actually to the currency in question moving "efficiently and correctly" from an altruistic perspective, rather than just marking the so-called correct price.

In a sense, the "correct" price *is* "altruistic". Supply/demand at equilibrium is as such that neither consumers nor producers can extract a surplus.