What is the difference between cost and price?

In one line

The rule

Cost is the total money spent to produce a good or service. Price is the amount a buyer pays to purchase that good or service.

Let's understand it simply

Imagine your mother makes samosas at home. She buys potatoes, oil, flour, and uses gas. The money she spends on these things is the cost. If she sells the samosas to your friends, the money your friends pay her is the price.

So, cost is about making. Price is about selling or buying.

How it works

1. A shopkeeper buys goods from a wholesaler. The money paid is the cost for the shopkeeper.
2. The shopkeeper adds some extra money (profit) to the cost.
3. The final amount he asks customers to pay is the price.
4. The difference between price and cost is usually the profit.

The story behind it

The idea of cost and price has been around since people started trading. Early traders needed to know how much they spent (cost) and how much they could get from buyers (price). This helped them decide if their business was making money.

Where you see it in real life

• Buying a cricket bat: The shopkeeper's cost is what he paid the factory. The price is what you pay at the shop.
• Vegetable market: A farmer's cost is seeds, water, and labour. The price is what you pay per kilo at the market.
• Cycle repair: The mechanic's cost is spare parts and his effort. The price is what he charges you for fixing your cycle.
• School canteen: The cost of a samosa is the ingredients. The price is what you pay to eat it.

Why it matters

• Helps businesses decide how much to charge for goods and services.
• Shows if a business is making a profit (when price is more than cost).
• Important for exams and real-life decisions, like running a shop or planning a budget.
• Used in later chapters about profit, loss, and market competition.

Common mistakes

• Thinking cost and price are always the same. They are not: price is usually higher than cost.
• Mixing up who pays what: cost is paid by the maker or seller; price is paid by the buyer.

Remember it

Cost is what it takes to make; price is what you pay to take.