Zerbe and Bellas, Chapter 5

Valuing inputs (net costs) in markets

Large Quantity

1. Using CS and PS (5.7) [Figure 1]
2. Using WTP and MC
3. Using pre-project prices
4. Using post-project prices
5. Bias = .5*ΔQ*ΔP
6. %ΔP = (ΔQ/Q)/(-PED + PES)

Small quantities (i.e., constant MC = perfectly elastic supply)

1. %ΔP = 0
2. Bias using the constant MC assumption (see above)

Perfectly inelastic supply

1. Cost = ΔCS = ΔP*Q

When there are taxes

1. Large Quantity [Figure 2]
2. Small Quantity (constant MC = perfectly elastic supply)
3. Standing

Other distortions

1. Price ceiling
2. Price floor

Unemployment

1. Cost of unemployed labor is the opportunity cost
2. Value at a % of market wage
3. Wages paid are not benefits

Eminent Domain

1. Forced sale price < WTA
2. Consider this a lower bound