Date of this Version
Cornhusker Economics April 29, 2015
When we are selling something, we evaluate market prices by comparing them to some reference price that we have in mind. This comparison gives us an idea of whether a certain price is “good” or “bad”. For example, if I am a corn producer and had a chance to sell corn for $4.20/bu a few months ago and now I can sell it only for $3.50/bu, it might feel like the current price is “bad” because I am comparing it with a higher price that would have allowed me to make more money. On the other hand, if my break-even price is $3.40/bu, then it might feel like the current price is “good” because I can still make a profit by selling above my break-even level.