In April 2020 sellers paid buyers to take oil away
For the first time ever, in April 2020, contracts for West Texas Intermediate crude due for May delivery fell below zero, to minus 37.63 dollars a barrel. Holders feared being forced to accept oil when storage tanks were already brimming, so they paid others to take it. The price had not vanished; the money simply flowed backwards.
In economics a price is what buyers are willing and able to pay and sellers are willing to accept. In a free market it settles where the quantity supplied matches the quantity demanded, although subsidies or collusion can push it around. Prices need not be in money at all. Air miles and trading stamps work as vouchers, and cigarettes have served as currency in prisons, during hyperinflation and in parts of wartime Europe.
Milton Friedman argued that prices do five jobs at once. They carry information about what people value, reward firms for making what the market wants and for saving scarce inputs, steer resource owners toward the best-paid uses, divide output among those owners and ration fixed supplies among consumers. No official has to decide any of it; the number itself coordinates millions of choices.
Adam Smith noticed a puzzle now called the diamond and water paradox: water keeps us alive yet is cheap, while diamonds are mere ornament yet dear. Carl Menger, a founder of the Austrian School, offered an answer through marginal utility, the idea that value depends on the usefulness of one more unit, and where water is plentiful an extra glass is worth little. Not everyone accepted that as the whole story. The Polish economist Oskar Lange sought to blend classical and neoclassical ideas, and Marxists hold that value springs from the labour time society needs to make something.
Price is also distinct from cost, even though people use the words interchangeably. Cost of production is what the seller spends making a product; price is what the buyer hands over, and profit lives in the gap. Businesses play with price points too, from shops ending everything in 99 to single-price dollar and 100-yen stores. And a restaurant menu that lists lobster or oysters at market price is admitting that the day's catch sets the bill.
Source: Price
