The Difference Between Objective Approach And Subjective Approach Essay Example

There has been an endless debate on the pros and cons of using subjective approach and objective approach since time immemorial. Objective approach is a pricing method that comprises of arithmetic computing of all costs that have been incurred so as to produce the final product or service. The total cost is considered as the final value. Subjective approach on the other hand is quite contrary where prices of the final product are based on speculation of whether it is on demand or not. The final product is priced on the basis of its value in the mind of the consumers. Subjective approach is associated with accountants, also referred to as accounting costs, while objective approach is associated with economists, also referred to as economic cost. It is in this perspective that the topic has spurred debate across the world on which is the best method of pricing goods and services, and which is the most recommended pricing method that can assist in reducing inflation significantly.
Accounting costs are tentatively arithmetic, in that, they take into account explicit costs only, where direct costs alone are calculated to formulate the initial price. For instance, when selling a house on a piece of land, the owner of the house will have to put together various costs so as to come up with the final price of the house at a given time when adopting accounting costs. Some of the costs that can be put into perspective in calculating the final price are; acquisition price of the land, costs incurred in building the house, carrying charges of the land, legal and consulting fees during the process of building the house, and amenity charges incurred. Economic costs in the contrary are based on speculations that are associated with the core law of supply and demand. Economists presume that inflation is highly probable to the consumers when adapting this cost. In the case above, where the owner of the house is considering disposing his house and coming up with the most suitable price, he will have to take into consideration a different approach that are related to income approach and comparative sales approach. This approach has no distinctive way of pricing as it is solely based on what the sellers perceive as the most suitable price that will give them value for their property.
Despite the huge difference described above, both accounting costs and economic costs are all associated with the subjective approach in the world today. This is in the sense that almost all governments in the world have adopted a controlling nature over pricing on goods deemed to be necessities. A maximum price may be set on a specific product such as oil, where the regulator feels that it has been highly inflated to the point that it is scarce among the citizens. This will be applied, overlooking the arithmetic calculations and basically adopting the law of supply and demand. This is implemented by the government through offering subsidies, reducing taxes, offering grants among others, so as to set up a ceiling price. Scholars in the finance field have concluded that objective approach in calculating the final price is instigated as a fact, but neither the buyer nor the seller in the world today cares about the fact. The two perceive value take over that result from the presumptions in both the mind of the buyer and the seller, which can also be associated with the bargaining approach. This will therefore adopt a conclusion that both accounting and economic costs are subjective.