What does economic depreciation indicate about an asset?

Economic depreciation refers to the decrease in an asset's value over time due to various factors such as physical deterioration, obsolescence, or decreased demand. When an asset experiences economic depreciation, it indicates that the market value of the asset has decreased, often as a consequence of wear and tear or the asset becoming outdated in relation to newer technologies or market preferences.

This concept is crucial for understanding how assets are valued in financial assessments and investment decisions. As assets deteriorate physically, their utility or functionality may diminish, leading to a lower market value. This is particularly relevant in real estate, where properties can lose value due to aging, lack of maintenance, or neighborhood decline. Recognizing economic depreciation in an asset is essential for accurate valuation and informed lending or financing decisions.