# component-parts-of-price

## Definition

The component parts of price are the three fundamental elements that constitute the total price of any commodity: rent of land, wages of labour, and profits of stock. These represent the shares that must be paid to the respective factors of production to bring the commodity to market at their natural rates. The sum of these components determines the natural price of the commodity.

## Source Chapter

Book 1, Chapter 7: "OF THE NATURAL AND MARKET PRICE OF COMMODITIES."

## Context

Smith systematically breaks down the price of commodities into these three fundamental components, showing how each represents a return to a factor of production. He explains how fluctuations in market prices affect these components differently, with rent being least affected by temporary price variations while wages and profits fluctuate more significantly.

## Economic Domain

Distribution

## Smith's Original Wording

"When the price of any commodity is neither more nor less than what is sufficient to pay the rent of the land, the wages of the labour, and the profits of the stock employed in raising, preparing, and bringing it to market, according to their natural rates, the commodity is then sold for what may be called its natural price."

## Modern Interpretation

The three-component theory of price represents Smith's fundamental analysis of value determination. This framework anticipates later theories of factor shares and provides the basis for understanding how different factors of production are compensated in competitive markets.