Market price method

Market price method

Suitability for the forest ecosystem services to be valued:
All marketed services
Description of the method:
Market price method estimates the economic value of ecosystem goods or services that are bought and sold in markets. The market price method can be used to value changes in either the quantity or quality of a good or service. It uses standard economic techniques for measuring the economic benefits from marketed goods and services, based on the quantity people purchase at different prices, and the quantity supplied at different prices. The standard method for measuring the use value of resources traded in the marketplace is the estimation of consumer surplus and producer surplus using the market price and quantity data.
Benefits of the method:
People’s values are likely to be well-defined as it reflects an individual willingness to pay for costs and benefits of goods or services that are bought and sold in markets. Unless there are known distortions to correct for, such markets prices can be taken as economic values
Data availability
It uses observed data of actual consumer preferences
It uses standard, accepted economic techniques
Limitations of the method:
Market data are available only for a limited number of goods and services
True economic value of goods or services may not be fully reflected in market transactions
Seasonal variations and other effects on price must be considered
It cannot be easily used to measure the value of larger scale changes that are likely to affect the supply of or demand for a good or service
Usually, the market price method does not deduct the market value of other resources used to bring ecosystem products to market, and thus may overstate benefits