What happens if the price is less than the cost?

In one line

The rule

If the selling price of a product is less than its total cost, the seller makes a loss on each unit sold.

Let's understand it simply

Imagine you make samosas at home. Each samosa costs you ₹10 for potatoes, oil, and gas. If you sell each samosa for ₹8, you lose ₹2 every time. It’s like buying a cricket bat for ₹500 and selling it for ₹400 — you lose ₹100. This is what happens when the price is less than the cost.

How it works

1. The seller spends money to make or buy the product (cost).
2. The seller sets a price to sell the product.
3. If the price is lower than the cost, the seller gets less money than they spent.
4. Each sale increases the total loss.
5. If this continues, the seller may run out of money and have to stop selling.

The story behind it

Businesses always try to set prices above their costs to make a profit. In tough times, like during a bumper harvest or a big sale, prices may drop below costs. Many small shopkeepers in India have faced this when big supermarkets offer heavy discounts. The famous story of the Indian onion crisis showed farmers selling onions for less than it cost to grow them.

Where you see it in real life

• Vegetable sellers in the mandi: Sometimes, prices crash after a bumper crop, and farmers sell tomatoes for ₹2/kg, even if it cost them ₹5/kg to grow.
• Online sales: Big e-commerce sites sometimes sell phones below cost to attract customers, hoping to make money later.
• Kirana shops: If a shopkeeper buys biscuits for ₹20 and sells them for ₹18 to clear old stock, they lose ₹2 per packet.
• Diwali crackers: After Diwali, leftover crackers are sold at very low prices, often below cost, just to avoid waste.

Why it matters

• Businesses need to cover their costs to survive and grow.
• If losses continue, shops or factories may shut down, leading to job losses.
• It helps you understand why some sales are not always good for the seller.
• In exams and real life, knowing this helps you judge if a business is healthy.

Common mistakes

• Thinking a lower price always means more profit. (Profit only comes if price is above cost.)
• Ignoring hidden costs like rent, electricity, or transport.
• Believing sellers can keep selling at a loss forever. (They usually can’t — they will stop or change prices.)

Remember it

If you sell for less than it costs, you lose money every time.