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The relation between price setting in markets and asymmetries of systems of measurement of goods

Mario Coccia ()

The Journal of Economic Asymmetries, 2016, vol. 14, issue PB, 168-178

Abstract: Markets, in an increasingly globalized world, have still dissimilar systems of measurement of goods due to different historical developmental paths of nations. A problem in economics is whether and how these asymmetries of systems of measurement of goods affect the prices in markets. The present study confronts this problem here by analyzing some prices of goods in U.S. and Italian economies that apply different systems of measurement of mass and liquid (i.e., United States Customary System vs. Metric System). The inductive study analyses the prices of milk, per gallon and liter, and the prices of a consumption bundle of fresh vegetables and fruit, per pound and kg, between the USA and Italy. The statistical evidence seems in general to support the hypothesis that differences of prices per same quantity and/or volume of good can be also explained by asymmetries in systems of measurement adopted in markets. In particular, results show that markets with basic units of measurement of mass and/or liquid having more quantity of good, e.g. kg rather than pound (0.4535kg) and/or gallon (3.78 Liter) rather than liter, induce lower levels of average price per same quantity, ceteris paribus. These findings may be due to relativity of cognitive processes of decision makers, which apply frugal way of reasoning in price setting, based on satisficing behaviour and bounded rationality, by associating a legal basic unit of measurement of mass and/or liquid to an official monetary unit. Hence, this study shows that basic units of measurement of goods with more quantity seem to generate lower average prices in markets and, as a consequence, higher benefits for consumers. The main aim of this article is therefore to clarify and to generalize whenever possible, the relation between dissimilar systems of measurement of goods and price setting in markets of different countries.

Keywords: E31; E64; P42; Q11; Price settings; Systems of measurement; Quantity asymmetries; Bounded rationality; Euro currency changeover; Measurement-based prices; Money illusion (search for similar items in EconPapers)
Date: 2016
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