ABSTRACT
All good students of economics know that cost is the opportunity forgone, and in economic evaluation the aim is to measure opportunity cost (see Chapter 4). While it is not usual practice to seek to identify a speci c opportunity forgone and its value, if markets function well, input prices re ect the value of their next best use. However, an economic evaluation will adjust prices where speci c market failures are identi ed (see Chapter 7). For example, where there are externalities, an economic evaluation will seek to measure those costs that are not internalised in the transaction, and where there are price distortions resulting from controls, monopolist or monopsonist in uence on the market, an economic evaluation will seek to nd the shadow price – the one that would prevail in the absence of those distortions.
