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9 Examples of Economic Value

  • Vrinda Mathur
  • Jun 23, 2022
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The economic worth of an asset is a computation of the earnings it has made or will make in the future. It is a measurement of the value of a product or service to an economic actor (person or company).

 

Economic value refers to the greatest price a customer is ready to pay for a product or service in a free market economy, or how long a person is willing to wait in a socialist economy to obtain a government-provided commodity or service.


 

What is Economic Value?

 

An economic value is a value assigned to a good by an individual person that may be stated, at least in theory, in terms of some readiness to pay for the good or some compensation for foregoing the good. Economic value may also be defined as the advantage gained from an item or service to a person, a business, or society as a whole.

 

Economic worth and market value are not the same thing. The market value of anything, such as an asset, is the price established by the supply and demand for the object in the marketplace. While economic value is a means to determine how much something is valuable to a certain group of people or society, in its entirety

 

Economic value is the worth that a person assigns to an economic good based on the benefit that the product provides. It is sometimes calculated based on the person's willingness to pay for the product, which is generally assessed in money units. 

 

It is important to not confuse Economic Value with Market Value, which is the market price for an item or service, which might be more or lower than the economic value assigned to a thing by any individual.

 

Economists typically believe that people, not governments, are the greatest judges of what they want. Thus, economic value theory is founded on individual preferences and decisions. People express their preferences through the choices and sacrifices they make when faced with specific restrictions, such as limited cash or time.

 

When a customer purchases a marketed product, they compare the amount they are willing to pay for it to the market price. In general, we will only buy anything if its price is equal to or higher than the market price.

 

Economic Value is one of various methods for defining and measuring value. Economic values are important to consider while making economic decisions including resource allocation tradeoffs.



 

Characteristics of Economic Value

 

Some of the major characteristics of Economic Value are :- 

 

  1. The economic worth of a product or service is defined by how and for how long consumers decide to spend their money.

 

  1.  Economic value is intangible; there is no accurate quantitative formula for determining the economic worth of a thing or service since it includes both tangible and intangible product features. 

 

The physical character is based on the product's functioning, whereas the intangible character is based on the consumer's emotional attachment to the good.

 

  1. Economic worth extends beyond monetary value. It is also linked to ideas like trust, social position, loyalty, dependability, adaptability, beauty, and the feelings it conveys.

 

  1. Economic values can be: a) convenient, which are items or services that are fast, easy, flexible, and dependable; and b) high fidelity, which are those that give aesthetic appeal, social status, or emotional effect.

 

  1. Economic values differ widely from one community or culture to the next, because not all groups value the same concerns or requirements. A smartphone, for example, may be more economically valuable in the West than on a desert island where the mobile network or internet does not reach.

 

  1. Economic value is not a fixed figure; it may be modified by changes in product and service quality standards, a loss in consumer purchasing power, changes in macroeconomic indicators such as inflation and scarcity indices, or simply a change in consumer tastes and preferences.


 

What is Economic Value Added

 

Economic value added is a term created to quantify a company's management's performance in producing value or money for its owners. We may use a simple formula to compute it. 

 

The cost of capital is subtracted from NOPAT in this case. This can also be referred to as economic profit or residual profit. It also includes numerous benefits and drawbacks of EVA as a performance metric.

 

Stern Stewart and Co. created and trademarked the economic value added (EVA) hypothesis. According to the EVA model, a company should deduct the cost of equity capital from its accounting profits to arrive at a figure that represents the true wealth of the investors.

 

It is a measure of a company's success that focuses on creating wealth or value for shareholders rather than merely accounting profits. To determine the true profits achieved by a company, all expenditures are removed from the revenues generated, and similarly, the cost of employing capital, whether debt or equity, should be deducted.

 

To calculate a company's EVA, use the following formula/equation:

 

EVA = Net Operating Profit after Taxes (NOPAT) – Capital Cost

 

NOPAT is an abbreviation for net operating profit after taxes. NOPAT is the profit before any capital costs are deducted. It also excludes the cost of debt.

 

Also Read | Difference between Economic Value and Market Value


 

Examples of Economic Values

 

The term value in economics refers to the consumer's desire to get an item or enjoy a service. Although valuation is subjective, the subjective fact that many people want a specific item or service is an objective economic reality

 

Economic value is derived from an examination of how the consumer chooses among various articles, those in which he will invest his limited resources, satisfying just part of his multiple requirements while attempting to optimize his well-being.

 

Convenient products and services are those that are easy to get, easy to use, adaptable, and dependable; on the other hand, high fidelity products and services provide quality, status, aesthetic appeal, and emotional effect. Most successful for-profit firms provide examples of economic virtues.

 

Some of the Examples of Economic Value seen could be :- 


Examples of Economic Value :- 1. Degrees from University 2. Garments 3. Distance Learning 4. Elite Education 5. Amazon 6. Haute Couture 7. Environment Friendly Brands 8. Evian 9. Organic Products

Examples of Economic Value


 

  1. Degrees from Universities

 

According to a 2015 research done by Georgetown University, professionals focusing in science, technology, and engineering have significantly higher economic worth than professionals specializing in art, education, and administration. Professionals who gain certain talents and abilities get better wages in the work market.

 

  1. Garments

 

Old Navy, Banana Republic, and Gap are all owned by the same corporation, Gap Inc. These three businesses provide comparable sorts of clothes, but each one provides compensations that influence the buying decisions of various consumer profiles.

 

Gap Inc segments each brand such that the consumer searching for utility, efficiency, and cheap cost will choose Old Navy. The consumer who is searching for style and fashion at a reasonable price will choose Gap.

 

Banana Republic is an excellent alternative for people who value aesthetics and superb taste at a high price. Each of the brands has its own personality as well as an economic worth.

 

  1. Distance Learning

 

Learning via the use of technology tools is becoming more trustworthy, specialized, and user-friendly for professionals who live in a fast-paced world and want to broaden their knowledge on certain themes of interest.

 

This sort of technology has a high economic value since it optimizes and makes more flexible the use of time, allowing the customer hungry for information to expand their knowledge.

 

  1. Elite Education

 

The economic worth of a university education is measured not only in terms of information gained, but also in terms of the amount of influence and relationships that the student might develop during his formative years. All of these factors will contribute to future career success.

 

  1. Amazon

 

Amazon.com is the world's most successful online business, with products ranging from hand soap to auto supplies available with a single click. Amazon also has a reliable home delivery service. This company's strong economic worth is maintained by efficiency, speed, dependability, and outstanding service.

 

  1. Haute Couture

 

Couture are one-of-a-kind items that take months to create. A dress may cost anywhere from.000 to more than.000, and it serves as both a fashion statement and a status signal for the buyer.

 

The economic worth of haute couture gowns resides in their visual appeal as well as the ingenuity that the designer manifests while creating a one-of-a-kind and tailor-made garment for the buyer.

 

  1. Environmentally Friendly Brands

 

Consumers not only choose the best option in terms of quality and price, but their purchasing habits increasingly favor environmentally conscious firms. Pain

 

Changes in company strategy to attract customers can sometimes be as easy as increasing the content of recycled material in their manufacturing processes and displaying this information on the label of the item, in order to boost its economic worth.

 

  1. Evian

 

There are already a significant number of spring water brands on the market with very comparable properties; nonetheless, Evian stands out as the most appealing and having the best economic worth.

 

This spring water has been utilized not just to satisfy thirst, but also for therapeutic purposes, and it has also been related to human enjoyment and amusement activities since its introduction to the market.

 

This kind of spring water is a favorite of major personalities in politics, sports, and entertainment, which gives those who drink it more status and thus boosts its economic worth.

 

  1. Organic Products

 

The market for organic products has increased exponentially in recent decades, owing mostly to society's embrace of healthier lifestyles and its rising concern in conserving the environment for future generations.

 

Organic food consumption promises a longer and better life, but it also requires the customer to pay 10% to 30% more of their normal budget in food purchases (Lohr 2001), demonstrating that the economic worth of organic food is larger than that of conventional food.

 

Also Read | Intermediate Goods vs Final Goods

 

It can be concluded that, Economic value evidence may be used to increase our knowledge of how the natural environment helps us, for example, by assisting in the formulation of policy, management, and investment objectives. A deeper knowledge of the economic significance of the natural environment might also point to long-term commercial potential. 

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