Chapter 4 Flashcards
What is a common property resource?
Resource that is nonexcludable but is rival to others.
What are the 3 phases of a total product curve for a common property resource?
Constant Returns to Scale
Diminishing Returns
Absolutely Diminishing Returns
Constant Returns to Scale
Proportional increase (or decrease) in one or more inputs results in the same proportional increase (or decrease) in the output.
Diminishing Returns
A proportional increase (or decrease) in one or more inputs results in a smaller proportional increase (or decrease) in output.
Absolutely Diminishing Returns
An increase in or more inputs results in a decrease in output.
How to find total revenue?
TR = PRICE * QUANTITY
How to find average revenue?
AR = TR / Q
How to find marginal revenue?
MR = deltaTR/deltaQ
How to find total cost?
production costs * quantity
How to find marginal cost?
MC = deltaTC/deltaQ
How to find average cost?
AC=TC/Q
How to find open-access equilibrium?
When the total revenue is equal to the total cost ; not economically efficient so no further incentive for entry or to exit the market
What is tragedy of the commons?
Common property resources are overexploited while individual incentives promote expanded exploitation
How to avoid tragedy of the commons?
License Fees
Establishing Quotas
How to find efficient allocation?
MR = MC, maximizing profit, ecologically sustainable, diminishing returns
What is a global common?
Global common property resources such as the atmosphere and the oceans
How is the price of the license fee established?
AR - AC
How can transferable permits be used to improve economic efficiency?
License fee can be used to improve economic efficiency by making sure that the most efficient outcome is still highly profitable, while also making the next level outcome very unprofitable so that no one actually does it.
How are tradable permits advantageous?
The advantage of using tradable permits is that the government does not need to know about potential revenues and the costs of production —> Those who want the permits does that stuff on their own.
