1. 4. Valuation in Primary Markets
Reading:
BGVW, Chapter 4
Farrow, JBCA 2015

2. 1. Measuring benefits and costs
What are these?
-- eg.,subway
1. Measuring benefits and costs
Surplus changes in Primary Markets
Ignore problems of estimating demand and supply schedules for now
Three cases
Efficient markets no price change
Efficient markets with price change
Inefficient markets (shadow values)
Public park
Externalities & Public Goods, Monopoly
Distortions: subsidies, taxes
Comment on expenditures capturing economic value

3. 2. Measuring benefits in efficient markets
Direct Increase in Supply to Consumers
No price change
Day Care Center

4. Figure 4-2 Measuring Benefits in an Efficient Market with No Price Effects

5. Price Changes
Day Care Center Again

6. Figure 4-3 Measuring Benefits in an Efficient Market

7. 2. Measuring benefits in efficient markets
Reduction in Costs to Producers
No price change
Harbor Deepening

8. Figure 4-2 Measuring Benefits in an Efficient Market with No Price Effects

9. Price Changes
Harbor Deepening Again

10. Figure 4-3 Measuring Benefits in an Efficient Market

11. 3. Measuring costs in efficient markets
Computer Purchases (no price change)
Often applies!

12. Figure 4-11 Opportunity Costs with No Price Effects

13. Concrete for dam ~ price change

14. Figure 4-13 Opportunity Costs with Price Effects

15. 4. Measuring benefits in distorted markets
Classic externality
Case of inefficient market: negative externality
Air pollution, water pollution, noise etc.

17.  Addictive Good

18. 5. Measuring costs in distorted markets Unemployed Labor
A: Zero
B: Budget C: D: E:

19. OPP Cost when buying from a Monopolist

20. General rules w/ opportunity cost in factor markets distorted:
Taxed: expenditure overstates
Subsidized: expenditure understates
Positive Externality: expenditure overstates
Negative Externality: expenditure understates