shadow price

"Shadow price" refers to the estimated value of a good, service, or resource that does not have a direct market price, often used in economic analysis and cost-benefit studies.

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Definition

C1Economic Analysis

(technical, academic)The estimated value of a good or service that is not traded in a market, used to evaluate non-market resources.

Example

  • In the absence of a direct market price, the shadow price of clean air was used to assess the benefits of the new environmental policy.

C1Cost-Benefit Analysis

(technical, academic)The monetary value assigned to intangible assets or externalities to provide a comprehensive understanding of a project's costs and benefits.

Example

  • The shadow price of reduced traffic congestion was included in the cost-benefit analysis of the new public transportation system.

C2Optimization Problems

(technical, academic)The implicit cost of a resource in constrained optimization, indicating the change in the objective function per unit increase in the resource's availability.

Example

  • The shadow price of labor in the optimization model showed the additional profit generated by hiring one more worker.