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What Is an Economic Value?

Companies often need to give up more resources in order to earn a surplus on their goods.
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  • Written By: Osmand Vitez
  • Edited By: PJP Schroeder
  • Last Modified Date: 02 April 2015
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Economic value often represents the amount of something given up in return for a good or service. For example, consumers purchase products with currency. High-priced products, many times, are less valuable as the economic value received is less than a cheaper product. The economic utility theory of value, however, states that higher prices associated with higher product quality can increase economic value. This is the result from the product offering more value than others currently on the market.

While price is typically the biggest factor in economic transactions, it does not always represent the true economic value of a good. Luxury goods have high prices but are usually less valuable to middle- or lower-class consumers. These individuals simply do not see the value in luxury goods, and so the value is low for these classes of citizens. The utility theory of value states that consumers often pay any price for goods that have high value, such as food, housing, and clothes.

On the business side of economic value, this economic theory represents all monies received over the production cost of goods and services. For example, a widget costs $5.00 US Dollars (USD) to produce. The company can sell widgets at a market price of $5.50 USD. The market price represents the most commonly paid price between the business and consumers in economic transactions. If the company can sell widgets for $6.00 USD to consumers, the surplus, i.e. value, over the standard market price is $.50 USD.

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Companies often need to give up more resources in order to earn a surplus on their goods. This trade-off can lead to more economic value between consumers and businesses. A company earns more value in received profits. Consumers receive more value when products have more features or last longer due to higher-quality materials. When extensive competition exists in a market, companies often attempt to separate their products through quality or value offered to consumers.

Economic value is subject to external factors that can reduce economic value. Substitute goods are a common factor that reduces the value a company receives. A substitute good is one that consumers see as valuable in place of the original good they prefer. For example, a smartphone can have several useful features, such as e-mail, texting, and Internet connectivity. When smartphone prices increase too much, consumers may purchase a standard cell phone, the substitute good that allows them to at least make phone calls.

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turquoise
Post 3

Here is a good example of economic value-- college degrees. Which college degrees have more economic value? It's the ones that have a bigger payoff in terms of higher income and easier access to work in the future. So engineering and medicine are more valuable than sociology or anthropology degrees.

Too bad high school students don't think too much about this issue when deciding which program to apply to. I know lots of people who regret their history, sociology and philosophy degrees. They may be interesting and enjoyable, but have very little economic value. High school teachers need to teach their students this instead of telling them "they can be whatever they want to be."

SarahGen
Post 2

@burcinc-- Economic value is very difficult to understand. It's usually defined as the worth of a product or the relationship between its cost and quality. But neither of these really explain the very complex concept that is economic value.

Probably the best and most accurate explanation is "the amount that a consumer is willing to pay for a product." This is why, for example, despite not costing a lot, water is an extremely valuable product. So value also has to do with consumer's needs and preferences. We can't live without water so we are willing to pay a lot for it if we have to. On the other hand, something much more expensive like an electronic gadget may have less economic value because it's not really a necessity but rather a luxury.

burcinc
Post 1

I don't understand how something that is more expensive can have less value. Shouldn't it be the exact opposite?

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