Glossary of economic terms

Avoided (damage) cost valuation method:

A cost-based valuation technique that estimates the value of the role an ecosystem plays in regulating natural hazards (e.g. floods and landslides) by calculating the damage that is avoided due to the ecosystem service.

Choice modelling:

Choice modelling attempts to model the decision process of an individual in a particular context. Choice modelling may be used to estimate non-market environmental benefits and costs. It involves asking individuals to make hypothetical trade-offs between different ecosystem services.

Consumer surplus:

The difference between what consumers are willing to pay for a good and its price. Consumer surplus is a measure of the bene t that consumers derive from the consumption of a good or service over and above the price they have paid for it.

Contingent valuation:

Contingent valuation is a survey-based economic technique for the valuation of non-market resources, such as environmental preservation or the impact of contamination. It involves determining the value of an ecosystem service by asking what individuals would be willing to pay for its presence or maintenance.

Cost-Benefit Analysis:

An evaluation method that assesses the economic efficiency of policies, projects or investments by comparing their costs and benefits in present value terms. This type of analysis may include both market and non- market values and accounts for opportunity costs.

Demand:

The amount of a good or service consumed or used at a given price; consumers will demand a good or service if the bene t is at least as high as the price they pay.

Direct use value:

The value derived from direct use of an ecosystem, including provisioning and recreational ecosystem services. Use can be consumptive (e.g. fish for food) or non-consumptive (e.g. viewing reef fish).

Discount rate:

The rate used to determine the present value of a stream of future costs and benefits. The discount rate reflects individuals’ or society’s time preference and/or the productive use of capital.

Discounting:

The process of calculating the present value of a stream of future values (benefits or costs). Discounting reflects individuals’ or society’s time preference and/or the productive use of capital. The formula for discounting or calculating present value is:

Economic activity:

The production and consumption of goods and services. Economic activity is conventionally measured in monetary terms as the amount of money spent or earned and may include ‘multiplier effects’ of input costs and wages

Economic benefit:

the net increase in social welfare. Economic benefits include both market and non-market values, producer and consumer benefits. Economic bene t refers to a positive change in human wellbeing.

Economic contribution:

The gross change in economic activity associated with an industry, event, or policy in an existing regional economy.

Economic cost:

A negative change in human wellbeing.


Economic impact:

The net changes in new economic activity associated with an industry, event, or policy in an existing regional economy. It may be positive or negative.

Economic value:

i) The monetary measure of the wellbeing associated with the production and consumption of goods and services, including ecosystem services. Economic value is comprised of producer and consumer surplus and is usually described in monetary terms. Or ii) The contribution of an action or object to human wellbeing (social welfare).

Ecosystem functions:

The biological, geochemical and physical processes and components that take place or occur within an ecosystem.

Ecosystem service approach:

A framework for analysing how human welfare is affected by the condition of the natural environment.

Ecosystem service valuation:

Calculation, scientific and mathematic, of the net human benefits of an ecosystem service, usually in monetary units.

Ecosystem services:

The benefits that ecosystems provide to people. This includes services (e.g. coastal protection) and goods (e.g. fish).

Ecosystem:

A dynamic complex of plant, animal and micro-organism communities and their non-living environment interacting as a functional unit.

Evaluate:

To assess the overall effect of a policy or investment.


Evaluation:

The assessment of the overall impact of a policy or investment. Evaluations can be conducted before or after implementation of a policy or investment.

Existence value:

The value that people attach to the continued existence of an ecosystem good or service, unrelated to any current or potential future use.

Factor cost:

Total cost of all factors of production consumed or used in producing a good or service.

Financial benefit:

A receipt of money to a government, firm, household or individual.

Financial cost:

A debit of money from a government firm, household or individual.

Future value:

A value that occurs in future time periods. See also present value.


Green accounting:

The inclusion of information on environmental goods and services and/or natural capital in national, sectoral or business accounts.

Gross revenue:

Money income that a firm receives from the sale of goods or services without deduction of the costs of producing those goods or services. Gross revenue from the sale of a good or service is computed as the price of the good (or service) multiplied by the quantity sold.

Gross value:

The total amount made as a result of an activity.


Hedonic pricing method:

A method for pricing ecosystem services. Hedonic price models assume that the price of a product reflects embodied characteristics valued by some implicit or shadow price.

Indirect use value:

The value of ecosystems services that contribute to human welfare without direct contact with the elements of the ecosystem, for example regulating services such as plants producing oxygen or coral reefs providing coastal protection.

Instrumental value:

The importance of something as a means to providing something else that is of value. For example, a coral reef may have instrumental value in reducing risk to human life from extreme storm events.

Intermediate costs:

The costs of inputs or intermediate goods that are used in the production of final consumption goods. For example, the cost of fishing gear used to catch fish is an intermediate cost to the harvest and sale of fish.

Intrinsic value:

The value of something in and for itself, irrespective of its utility to something or someone else. Not related to human interests and therefore cannot be measured with economic methods.

Marginal value:

The incremental change in value of an ecosystem service resulting from an incremental change (one additional unit) in the quantity produced or consumed.

Market value:

The amount for which a good or service can be sold in a given market.


Negative externality:

Negative externalities occur when the consumption or production of a good causes a harmful effect to a third party.

Net revenue:

Monetary income (revenue) that a firm receives from the sale of goods and services with deduction of the costs of producing those goods and services. Net revenue from the sale of a good is computed as the price of the good multiplied by the quantity sold, minus the cost of production.

Net value:

The value remaining after all deductions have been made.


Nominal:

The term ‘nominal’ indicates that a reported value includes the effect of inflation. Prices, values, revenues etc. reported in ‘nominal’ terms cannot be compared directly across different time periods. See also real and constant prices.

Non-use value:

The value that people gain from an ecosystem that is not based on the direct or indirect use of the resource. Non-use values may include existence values, bequest values and altruistic values.

Opportunity cost:

The value to the economy of a good, service or resource in its next best alternative use.


Option value:

The premium placed on maintaining environmental or natural resources for possible future uses, over and above the direct or indirect value of these uses.

Present value:

A value that occurs in the present time period. Present values for costs and benefits that occur in the future can be computed through the process of discounting (see discount rate). Expressing all values (present and future) in present value terms allows them to be directly compared by accounting for society’s time preferences.

Producer surplus:

The amount that producers bene t by selling at a market price that is higher than the minimum price that they would be willing to sell for. Producer surplus is computed as the difference between the cost of production and the market price. Value-added, pro t, and producer surplus are similar measures of the net bene t to producers. Although they differ slightly, the terms are used synonymously for this report to represent economic value.

Profit:

The difference between the revenue received by a firm and the costs incurred in the production of goods and services. Value-added, profit and producer surplus are similar measures of the net bene t to producers. Although they differ slightly, the terms are used synonymously for this report to represent economic value.

Purchasing power parity adjusted exchange rate:

An exchange rate that equalises the purchasing power of two currencies in their home countries for a given basket of goods.

Purchasing power parity:

An indicator of price level differences across countries. Figures represented in purchasing power parity represent the relative purchasing power of money in the given country, accounting for variance in the price of goods. Typically presented relative to the purchasing power of US dollars in the United States.

Real:

The term ‘real’ indicates that a reported value excludes or controls for the effect of inflation (synonymous with constant prices). Reporting prices, values, revenues etc. in ‘real’ terms allows them to be compared directly across different time periods. See also nominal and constant prices.

Regulating services:

A category of ecosystem services that refers to the benefits obtained from the regulation of ecosystem processes. Examples include water ow regulation, carbon sequestration and nutrient cycling.

Rent:

Any payment for a factor of production in excess of the amount needed to bring that factor into production (see also producer surplus and resource rent).

Replacement cost method:

A valuation technique that estimates the value of an ecosystem service by calculating
the cost of human-constructed infrastructure that would provide same or similar service to the natural ecosystem. Common examples are sea walls and wastewater treatment plants that provide similar services to reefs, mangroves, and wetland ecosystems.

Resource rent:

The difference between the total revenue generated from the extraction of a natural resource and all costs incurred during the extraction process (see also producer surplus). Refers to pro t obtained by individuals or firms because they have unique access to a natural resource.

Revenue:

Money income that a firm receives from the sale of goods and services (often used synonymously with gross revenue).

Social cost of carbon (SCC):

The social cost of carbon is an estimate of the economic damages associated with a small increase in carbon dioxide (CO2) emissions, conventionally one tonne, in a given year. This dollar figure also represents the value of damages avoided for a small emission reduction (i.e. the benefit of a CO2 reduction).

Stated preference method:

A survey method for valuation of non-market resources in which respondents are asked how much they would be willing to pay (or willing to accept) to maintain the existence of (or be compensated for the loss of) an environmental feature such as biodiversity.

Supply:

The quantity of a good or service that producers will supply at a given price; producers will supply goods and services if they at least cover their costs.

Supporting services:

A category of ecosystem services that are necessary for the production of all other ecosystem services. Examples include nutrient cycling, soil formation and primary production (photosynthesis).

Total economic value:

All marketed and non-marketed benefits (ecosystem services) derived from any ecosystem, including direct, indirect, option and non-use values.

Use value:

Economic value derived from the human use of an ecosystem. It is the sum of direct use, indirect use and option values.

User cost:

The cost incurred over a period of time by the owner of a xed asset as a consequence of using it to provide a ow of capital or consumption services; the implications of current consumption decisions on future opportunity. User cost is the depreciation on the asset resulting from its use.

Utilitarian value/Utility:

A measure of human welfare or satisfaction. Synonymous with economic value.

Valuation:

The process or practice of estimating human benefits of ecosystem services or costs of damages to ecosystem services, represented in monetary units.

Value:

The contribution of an action or object to human wellbeing (social welfare).

Value-added:

The difference between cost of inputs and the price of the produced good or service. Value-added can
be computed for intermediate and final goods and services. Value-added, profit, and producer surplus are similar measures of the net benefit to producers. Although they differ slightly, the terms are used synonymously for this report to represent economic value.

Welfare:

An individual’s satisfaction of their wants and needs. The human satisfaction or utility generated from a good or service.

Willingness-to-accept:

The minimum amount of money an individual requires as compensation in order to forego a good or service.

Willingness-to-pay:

The maximum amount of money an individual would pay in order to obtain a good, service, or avoid a change in condition.