A:

The difference between market value and economic value is that the former represents the minimum amount the customer is willing to pay for an asset while the latter represents the maximum amount that the customer is willing to pay. They are different valuations based on different criteria. Both concepts are widely used in business for varying purposes.

Market Value

Market value is based on supply and demand. It is used to refer to a company’s market capitalization value. It is calculated by multiplying the number of shares issued by the price of the company's share. A company's share price is determined by daily trading between buyers and sellers on the relevant stock exchange. Market prices are easy to determine for assets as the constituent values, such as stock and futures prices, are readily available. The value of real estate assets are not as simple to determine, so real estate appraisers are required to provide a valuation. The same is true for businesses whose shares are not traded on a public exchange. A valuation would have to be prepared using a different method.

Economic Value

The economic value of an asset is based on individual preferences. The same asset may have significantly different economic values for two different companies or individuals. For businesses, economic value represents the value that the company derives from using the asset. It is the same as the value in use. This may be higher or lower than the market value for a similar asset. However, economic value typically exceeds market value.

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RELATED TERMS
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