chapter 7 Flashcards
natural gas price controls
demand increases, congress sets a price ceiling
lower prices, more was used up in earlier years
once MC = price ceiling, no more would be produced
price ceilings
- more resource left in the ground
- rate of consumption
- time of transition is earlier
- transition is abrupt
scarcity rent
an opportunity cost that protects future consumers
a monopolist scarcity rent
can extract more of it from a deplorable resource base than competitive suppliers simply by restricting supply
monopolistic switch point
occurs later than competitive
climate considerations affect energy policy in 2 ways
- level of energy consumption matters
- mix of energy sources matter
vulnerable strategic imports
have an added cost that is not reflected in the marketplace
national security is a classic public good
no individual importer correctly represents our collective national security interests in making a decision on how much to import
determination of the appropriate balance between imports and domestic product
market generally results in an excessive dependance on imports due to climate change and national security considerations
PW2
includes vulnerability premium
PW3
adds in per unit climate change damages due to consuming more imports
vulnerability premium
reflects additional national security costs caused by imports
embargo
supply becomes perfectly inelastic (vertical) at the import point
should we become self sufficient in case of an embargo
no
vulnerability premium is lower than the cost of self sufficiency:
- embargoes are not certain events
- domestic steps can be taken to reduce vulnerability of imports
- accelerating domestic production will incur a user cost by lowering the amount available for future generations
