Valuation tools - market prices, Public Economics

Valuation Tools - Market Prices

Valuation at market prices can be applied for natural resources which are marked. Market price, as you know, is realized when demand for a product equals its supply. Since it is determined as a result of interaction between numerous buyers and sellers, it is considered to be a sort of equilibrium price. The advantage with market price is that it is easy to obtain and it reflects the willingness to pay of people. Thus it is quite acceptable to people as a value of the product under consideration. However, in many instances there are distortions to the market price and it does not reflect true economic value of a commodity and thus allocation of resources on the basis of market prices does not represent economic efficiency in utilization of resources. These distorting factors could be taxes imposed and subsidies provided by the government, for example, Subsidies on fertilizer reduce its price than what would have been. Thus the market price of fertilizer is less than its true economic value and induces farmers to buy more of it. A second source of distortion to market price could arise due to fixation of exchange rate, particularly for commodities traded internationally.

Many of the environmental resources do not enter the market in the sense that these are not traded at all. In such cases valuation of these resources at market prices is not possible and we have to look for alternative valuation tools. Secondly, many environmental resources are traded in the market but do not reflect true economic value of the product due to taxes and subsidies. Thirdly, property rights for natural resources in most of the cases lies with the government. But unauthorized selling of minerals, forest products, hide and horns of animals, etc. is rampant in many countries including India. In such cases the seller does not bear the cost of production of the product and therefore can afford to sell it much cheaper.

Posted Date: 12/18/2012 5:09:51 AM | Location : United States

Related Discussions:- Valuation tools - market prices, Assignment Help, Ask Question on Valuation tools - market prices, Get Answer, Expert's Help, Valuation tools - market prices Discussions

Write discussion on Valuation tools - market prices
Your posts are moderated
Related Questions
As we know now that in policy process, policy outcome may differ from the social planner outcome not only because different policies may be chosen but because a given policies may

Normal 0 false false false EN-IN X-NONE X-NONE MicrosoftInternetExplorer4

Earlier than the Civil War, the South graded with the North and with England. It sold cotton and bought manufactured goods and food. Throughout the war, one of Lincoln's first acti

Question 1: "The only social responsibility of business is to increase its profits" wrote Milton Friedman, Economics Nobel prize winner, in an article in the New York Times Mag

There has been a long history of research on ‘the policy process' which is ‘closely connected to efforts to examine the nature of power in society and to specify the necessary cond

Normal 0 false false false EN-IN X-NONE X-NONE MicrosoftInternetExplorer4

Public Economics can broadly be understood as that Economics which deals withpublic intervention in the economy. Its domain is supposed to encompass rationalefor public interventio

Question 1 Legislature, most commonly known by the name parliament, forms the first important organ of a political organization and to hold this position it performs certain func

Normal 0 false false false EN-IN X-NONE X-NONE MicrosoftInternetExplorer4