A Practical Guide to Economic Valuation of the Natural Environment
One of the most difficult tasks confronting economists over the past two centuries has been to value attributes of the economy. The old saying, economists know the price of [5-2] everything and the value of nothing was perhaps appropriate in the 19th century, but can now be replaced with economists know the value of most market goods and know the value of a few commodities that are not bought and sold in the market place. That is, in the western, semi-capitalistic economies, there is an almost universal acceptance among economists that value is derived by how much individuals are willing to pay for a commodity less the market price they do in fact pay. Note that this measure of value is not the price paid, but the residual above price paid. Alfred Marshall named this residual consumer surplus. Thus, economic value is derived from what you, at maximum, are willing to pay and not what you actually pay. When commodities have very little surplus or residual, they are deemed to be of relatively no value when compared to commodities with relatively large amounts of surplus. In order to assess the value of any commodity, one needs a demand curve in addition to market price. Market price, in isolation, reveals no information as to the magnitude of economic value.1 Where demand curves representing maximum willingness to pay for various quantities exist for a market commodity, economic
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