The Many Economic Applications of Shadow Price

The Many Economic Applications of Shadow Price In the strictest sense, a shadow price is any price that is not a market price. A price that is not based on actual market exchanges must then be calculated or mathematically derived from otherwise indirect data. Shadow prices can be derived for anything from a resource to a good or service. But this is just the tip of the iceberg. While economists tend to be committed to markets as a means of valuation, the lack of a market price is not necessarily a limitation of their research. In fact, economists recognize â€Å"goods† that carry societal value for which there are no markets to set a market price. Such goods might include the intangible like clean air. Conversely, economists also recognize that there exist goods that do have a market-traded value that is simply not a good representation of the good’s true societal value. For example, electricity produced from coal carries a market price that does not consider the impact or â€Å"social cost† of coal burning on the environment. It is in these scenarios that economists find it difficult to work, which is why the discipline relies on the calculation of shadow prices to give a â€Å"price-like† value to otherwise unpriced resources. The Many Definitions of Shadow Price While the most basic understanding of the term shadow price relates simply to the lack of a market price for some resource, good, or service, the meanings of the term as derived from its real-world uses relay a more complicated story. In the world of investments, shadow price can refer to the actual market values of a money market fund, which essentially refers to securities that are accounted for based on amortized cost rather than a value assigned by the market. This definition carries less weight in the world of economics. More relevant to the study of economics, another definition of shadow price denotes it as a proxy value of a good or intangible asset that is most often defined by what must be given up to gain an extra unit of the good or asset. Last, but not least, shadow prices can also be utilized to derive an inclusive value of the impact of a project, whether it be a benefit or costs, using stated preferences, making the process an extremely subjective one. In the study of economics, shadow prices are most often used in cost-benefit analyses in which some elements or variables cannot be otherwise quantified by a market price. In order to fully analyze the situation, each variable must be assigned a value, but it is important to note that the calculation of shadow prices in this context is an inexact science. Technical Explanations of Shadow Price in Economics In the context of a maximization problem with a constraint (or constrained optimization), the shadow price on the constraint is the amount that the objective function of the maximization would increase by if the constraint were relaxed by one unit. In other words, the shadow price is the marginal utility of relaxing the constant or conversely, the marginal cost of strengthening the constraint. In its most formal mathematical optimization setting, the shadow price is the value of a Lagrange multiplier at the optimal solution.

Biography of Inventor Jacob Perkins

Biography of Inventor Jacob Perkins Jacob Perkins  was an American  inventor,  mechanical engineer, and  physicist. He was responsible for a variety of important inventions, and made significant developments in the field of anti-forgery currency. Jacob Perkins Early Years Perkins was born in Newburyport, Mass., on July 9, 1766, and died in London on July 30, 1849. He had a goldsmith  apprenticeship during his early years and soon made himself known with a variety of useful mechanical inventions. He  eventually had 21 American and 19 English  patents. He is known as the father of the refrigerator. Perkins  was elected a Fellow of the  American Academy of Arts and Sciences  in 1813.   Perkins Inventions In 1790, when Perkins was just 24, he developed machines for cutting and heading nails. Five years later, he earned a patent for his improved nail machines and started a nail manufacturing business in  Amesbury, Massachusetts. Perkins invented the bathometer (measures the depth of water)  and  the  pleometer  (measures the speed at which a vessel moves through the water). He also invented an early version of the refrigerator  (really an  ether  ice machine). Perkins  improved steam engines (radiator for use with hot water central heating - 1830) and made improvements to guns. Perkins also invented  a method of plating shoe-buckles. Perkins Engraving Technology Some of Perkins greatest developments involved engraving.  He started a printing business with an engraver named Gideon Fairman. They first engraved school books, and also made currency that was not being forged. In 1809, Perkins bought the stereotype technology (prevention of counterfeit bills) from Asa Spencer, and registered the patent, and then employed Spencer. Perkins made several important innovations in printing technology, including new steel engraving plates. Using these plates he made the first known steel engraved USA books. He then made currency for a Boston Bank, and later for the National Bank. In 1816 he set up a printing shop and bid on the printing of currency for the  Second National Bank  in Philadelphia. Perkins Work with Anti-ForgeryBank Currency His top-notch American bank currency received  attention from the  Royal Society  who were busy addressing the massive problem of forged  English bank notes. In 1819, Perkins and Fairman went to England to try to win the  £20,000 reward for notes that could not be forged. They pair showed sample notes to the  Royal Society  president Sir  Joseph Banks. They set up shop in England, and spent months on example currency, still on display today. Unfortunately for them, Banks thought that unforgeable also implied that the inventor should be English by birth. Printing English notes ultimately proved a success and was carried out by Perkins in partnership with the English engraver-publisher Charles Heath and his associate Fairman. Together they formed the partnership  Perkins, Fairman and Heath which was later renamed when his son-in-law, Joshua Butters Bacon, bought out Charles Heath and the company was then known as  Perkins, Bacon.  Perkins Bacon  provided banknotes for many banks and foreign countries with  postage stamps.  Stamp production started for the British government in 1840 with stamps that incorporated an anti-forgery measure. Perkins Other Projects Also concurrently, Jacobs brother ran the American printing business, and they made money on important fire safety patents. Charles Heath and Perkins worked together and independently on some concurrent projects.