PART OF

Guide to Economics

ECONOMY ECONOMICS

Economic Value

By CAROLINE BANTON

Updated Jul 31, 2020

What Is Economic Value?

Economic value can be described as a measure of the benefit from a good or service to an economic
agent. It is typically measured in units of currency. Another interpretation is that economic value
represents the maximum amount of money an agent is willing and able to pay for a good or service. The
economic value should not be confused with market value, which is the minimum amount a consumer
will pay for a good or service. Thus, economic value is often greater than the market value.

KEY TAKEAWAYS

Economic value is the maximum amount of money an agent will pay for a good or service.

The economic value of an item changes as the price or quality of similar or associated items changes.

Producers use economic value to set prices for their products taking into consideration tangible and
intangible factors such as brand name.

Understanding Economic Value

The preferences of a given population determine the economic value of a good or service and the trade-
offs agents make given their resources. For example, if an agent decides to buy a bag of apples, the
economic value is the amount the agent is willing to pay for those apples bearing in mind that the
money could be spent on something else. This choice represents a trade-off. Economic value is also
directly correlated to the value that any given market puts onto an item.

Economic Value of Consumer Goods

Economic value is not a static figure; it changes when the price or quality of similar items changes. For
example, if the price of milk increases, people may buy less milk and less cereal. This reduction in
consumer spending is likely to lead producers and retailers to lower the cost of cereal to entice
consumers to buy more. How people choose to spend their income and their time, therefore,
determines a good or service’s economic value.

Economic Value in Marketing

Companies use the economic value to the customer (EVC) to set prices for their products or services.
EVC is not derived from a precise mathematical formula, but it considers the tangible and intangible
value of a product. The tangible value is based on the product’s functionality, and the intangible value is
based on consumer sentiment toward product ownership.

For example, a consumer places a tangible value on a durable pair of sneakers that provide protection
and support during athletic activity. However, the sneaker’s brand label or affiliation with a celebrity can
add intangible value to the sneakers.

Although modern economists believe economic value is subjective, notable past economists, such as
Karl Marx, believed that economic value was objective. Marx believed that the value of a good is
determined by the value of labor used to make the good, not the amount that individuals are willing to
pay for the finished product.

Real World Example

An example of the practical application of economic value is the weighing of the merits of college
degrees in different disciplines. There is a consensus that a college degree has more economic value
than a high school diploma and that some college degrees have a higher economic value than others.

For example, according to a 2015 Georgetown study, students who major in STEM (science, technology,
engineering, and mathematics) fields, such as petroleum engineering, will likely enjoy dramatically more
economic value from their degrees than students who major in fields such as early childhood education,
human services, or art.1 The market assigns greater worth on certain skills than others, and the degrees
that lead to these skills have greater economic value, meaning that the salaries of these jobs will be
higher, leading to a higher level of wealth for the individual.

The study showed that the highest paying college majors earn $3.4 million more than the lowest-paying
college majors over the course of a lifetime. It also showed that the median annual wage of college
graduates between the ages of 21 and 24 is highest for jobs related to a major in STEM, with a median
wage of $43,000 versus a median wage of $29,000 for jobs related to majors in the liberal arts,
humanities, and arts. Therefore the economic value of a health major is higher than the economic value
of a major in the humanities.1

ARTICLE SOURCES

Related Terms

What You Need to Know About Brand Equity

Brand equity refers to the value a company gains from a product with a recognizable and admired name
when compared to a generic equivalent. More

Marginal Benefit

A marginal benefit is the added satisfaction or utility a consumer enjoys from an additional unit of a
good or service. More

Why Value-Added Matters

Value added is the economic extra endowed by a company onto the goods or services it offers. More

Understanding Brand Management

Brand management is a marketing function that uses brand management techniques to increase the
perceived value of a product line or brand over time. More

Above the Margin: Understanding Marginal Utility

Marginal utility is the additional satisfaction a consumer gets from having one more unit of a good or
service. More

Nonmonetary Assets

Nonmonetary assets are items a company holds for which it is not possible to precisely determine a
dollar value. More

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MICROECONOMICS

The Difference Between Consumer Surplus vs. Economic Surplus

CAREER ADVICE

5 Ways to Increase Your Chances of Getting a Job After College

COLLEGES & UNIVERSITIES

The College Degrees You Should Have Gotten

MACROECONOMICS

How Education and Training Affect the Economy

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