Chapter 4

Question 1

What is a common property resource?

Answer 1

Resource that is nonexcludable but is rival to others.

Question 2

What are the 3 phases of a total product curve for a common property resource?

Answer 2

Constant Returns to Scale
Diminishing Returns
Absolutely Diminishing Returns

Question 3

Constant Returns to Scale

Answer 3

Proportional increase (or decrease) in one or more inputs results in the same proportional increase (or decrease) in the output.

Question 4

Diminishing Returns

Answer 4

A proportional increase (or decrease) in one or more inputs results in a smaller proportional increase (or decrease) in output.

Question 5

Absolutely Diminishing Returns

Answer 5

An increase in or more inputs results in a decrease in output.

Question 6

How to find total revenue?

Answer 6

TR = PRICE * QUANTITY

Question 7

How to find average revenue?

Answer 7

AR = TR / Q

Question 8

How to find marginal revenue?

Answer 8

MR = deltaTR/deltaQ

Question 9

How to find total cost?

Answer 9

production costs * quantity

Question 10

How to find marginal cost?

Answer 10

MC = deltaTC/deltaQ

Question 11

How to find average cost?

Answer 11

AC=TC/Q

Question 12

How to find open-access equilibrium?

Answer 12

When the total revenue is equal to the total cost ; not economically efficient so no further incentive for entry or to exit the market

Question 13

What is tragedy of the commons?

Answer 13

Common property resources are overexploited while individual incentives promote expanded exploitation

Question 14

How to avoid tragedy of the commons?

Answer 14

License Fees
Establishing Quotas

Question 15

How to find efficient allocation?

Answer 15

MR = MC, maximizing profit, ecologically sustainable, diminishing returns

Question 16

What is a global common?

Answer 16

Global common property resources such as the atmosphere and the oceans

Question 17

How is the price of the license fee established?

Answer 17

AR - AC

Question 18

How can transferable permits be used to improve economic efficiency?

Answer 18

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.

Question 19

How are tradable permits advantageous?

Answer 19

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.