9780321818171_berk_ch03

Note that the jeweller can both buy and sell silver

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Unformatted text preview: ndent of his own views or preferences, the value of the silver to the jeweller is $5000. Note that the jeweller can both buy and sell silver at its current market price. His personal preferences or use for the silver and his opinion of the fair price are therefore irrelevant in evaluating the value of this opportunity. This observation highlights an important general principle related to goods trading in a competitive market, a market in which a good can be bought and sold at the same price. Whenever a good trades in a competitive market, that price determines the value of the good. This point is one of the central and most powerful ideas in finance. It will underlie almost every concept that we develop throughout the text. Problem You have just won a radio contest and are disappointed to find out that the prize is four tickets to the Celine Dion concert (face value $80 each). Not being a fan of Celine (as you were traumatized by having to watch the movie Titanic several times when you were younger), you have no intention of going to the show. However, it turns out that there...
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