Chapter 4: Nonmarket Valuation
This video covers Sections 5.1 and 5.2 in Chapter 5 of Economic Essentials in Business, Management and Engineering. It provides the theory behind welfare measurement and the environment, because environmental (ecological) goods and services are not traded in the market place. It examines measurement of surplus areas as required in project valuation when markets do NOT exist. Surpluses constitute measures of costs or benefits. When examining the environment, economists identify four welfare additional measures of consumer wellbeing based on utility theory. These are compensating and equivalent variation and compensating and equivalent surplus. The latter two measures are used even if markets exist, but are required in the case of environmental goods and services where markets do not exist. This video provides a brief overview of these measures.