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Basic Concepts of Economic Value

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  • 0:02 Economic Value
  • 0:51 Market Economy & Value
  • 2:20 Example & Consumer Surplus
  • 3:58 Lesson Summary
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Lesson Transcript
Instructor: Jessica Whittemore

Jessica has taught junior high history and college seminar courses. She has a master's degree in education.

This lesson explains the concept of economic value. It defines the terms market economy, market value, and consumer surplus. It also differentiates between economic value and market value.

Economic Value

If you've watched TV anytime in the last 20 years or so, you've probably heard the question, 'What would you do-o-o for a Klondike bar?' Besides being a very catchy jingle, this famous query fits perfectly into today's study on economic value. To see what I mean, let's jump into our lesson.

Speaking academically, economic value is the total amount of goods or currency that is measured as equal to the value of something else. It's the amount someone is willing to trade or sacrifice to get something else. In short, it's the measure of what a consumer is willing to give to get. This is like the famous commercial asking what would you do-o-o to get a certain product. Would you give up a dollar or two? Would you trade your lunch?

Market Economy & Value

Keeping our definition in mind, most conversations on economic value center on what is called the market economy. A market economy is one in which economic decisions, such as production, resource allocation, and pricing, are determined by consumer choice and not government regulation. In a market economy, individuals are in the driver's seat. For the most part, the government doesn't step in and set prices or tell producers what to produce. Prices and production are based on the desires of the consumer.

In the same manner, economic value is determined by the consumer. Again, it's the measure of what the consumer is willing to trade or sacrifice for a product. In a modern market economy, money is usually used to express economic value. Rather than trading bread for meat or chickens for medical care, most of us whip out bills and coins. However, this currency represents the trade-off of resources and time. After all, it takes time to make money, and we in the modern world often sacrifice a bunch to get it!

Now, here's a thing that gets a bit tricky. Economic value is not the same thing as market value. Although similar, market value is still a different animal. Keeping things very, very simple, market value is the normal minimum amount for which something sells in a market economy. It's the price consumers are willing to pay under normal circumstances. To explain this difference, here's an example.

Example & Consumer Surplus

During my senior year, my college football team was in the running for the national championship. For this reason, the stands were packed and games were usually sold out. After all, everyone likes to watch a winner! Enter ticket scalping!

Now, lucky for me, I had student season tickets, so I paid the normal market value for them, about $45 a game. However, not everyone was so lucky. Lots of people scrambled for tickets and were willing to pay way more than market value, the normal minimum amount for which something sells.

In fact, I remember one game where tickets were going for well over $200! In other words, the team's winning season had greatly increased the economic value of tickets. To see a winner, fans were willing to sacrifice way more to get in on the fun. They were willing to trade the time it took them to earn that $200, and they were willing to trade off the other things they could buy with that $200. I actually had a friend who spent his rent money on a chance to see the game! Talk about economic value!

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