Price certainly is the mechanism by which a business charges its customers, but it is not exactly true that cost is what the business pays for things. In a simple trading business which buys things from one source and sells them on, it is traditional to talk of cost price and selling price to make the distinction. The use of ‘cost price’ indicates that something is being paid for. However, if the business makes things itself, or digs material out of the ground, or milks cows, how much do things then cost – and does it matter? The second question is easier to answer than the first, on at least two counts ¡ª firstly, the Inland Revenue insists that it matters, and secondly, how can you make a decision about prices if you don’t know what your costs are? The first question is harder to answer, because in fact, how much anything costs is qualified by the set of circumstances surrounding it.
Actually, businesses such as dairy farming can be ruled out of this discussion, because they do not set prices but take what they are given in the market. This creates an inherent instability which has tended to require government intervention to ensure that, for example, there is an adequate dairy industry. Most of the activities associated with milking have to take place anyway (whatever the price of milk), so while there are probably some relationships between say, winter feed choices and milk yields, costs are not really connected with prices at all.
Expectations of definite relationships between price and cost are the norm in market economies, so that one would not expect to receive in a Western country as I did in Poland a newly-minted 10 zlotysch coin worth one-tenth of a US cent and probably more valuable for its metal content than its exchange value. (There were times when newly minted Italian coinage would disappear immediately, turning up in China for a similar reason.)