chapters 1-4 Flashcards
pollution
negative externality = “imposes a cost on people who are ‘external’ to the producer or consumer of the product.”
internalizing the externalities
if polluters were forced to compensate victims, the resources would no longer be underpriced
open access problem
if people weigh private benefits against private costs, they will overexploit common resources when given open access = tragedy of the commons
resource rents
long run profits, generated by restricted access to natural capital (only small amount gain access)
can be collected in form of tax and used to reimburse those who lose out in the process of regulating and loosing access
public good problem
- free riding = people benefit from the public goods regardless of whether or not they pay for them
- high transactions = public good provision require groups of people to undertake action. this can be expensive
==> need gov to control
three levels of cost-savings
- risk reduction = firms that pro-actively reduce pollution and reduce the risk of facing regulations, legal liabilities, and negative consumer reactions
- resource savings = using water, energy, and raw materials more efficiently reduces emissions and saves money
- culture of innovation = firms that make environemtal problem-solving part of their buisness
pareto-efficient situation
a situation in which it is impossible to make one person better off without making anyone else worst off
efficient outcome
net monetary benefits produced by the economy are maximized
efficient pollution levels
= marginal benefits of pollution reduction equal the marginal costs of pollution reduction
= total benefits exceed total costs
marginal analysis
examining the additional or incremental benefits and costs of a specific action or unit
marginal unit
last unit of pollution added
marginal cost
costs of reducing that unit
marginal benefits
benefits from reducing that unit
marginal graph values
bc marginals represent changes in total values as we move from one unit to the next, it is conventional to graph marginal values between the units on the X axis
marginal curves
change in the total curves
social welfare function
used to assess different social outcomes –> measure overall well-being
the coase theorem
if polluters and victims can bargain easily and effectively, private negotiations should arrive at the efficient outcome regardless of who has the original right to pollute or prevent pollution
limitations: free riding + transaction costs
==> DOESN’T RLY HAPPEN
global warming
long-term increase in Earth’s average surface temperatue due to the accumulation of greenhouse gases in the atmosphere
positive feedback
process that amplifies initial warming effect
= ex: global warming = more clouds = more global warming
negative feedback
changing temperatures decelerate warming
= ex: cloud coverage lead to reducing amount of radiation entering earth’s atmosphere
economic costs
financial costs associated with environmental issues (taxes, health care, agriculture). exclued ethical considerations such as fairness and the protection of rights
benefits vs costs
assigning a dollar value to things and evaluating. measurable monetary benefits need to b greater than measurable monetary costs
utilitarianism
environment’s value lies in its contribution to the happiness and well-being of present and futur generations and people
four economic questions about global warming
- How much pollution is too much?
- Is the gov up to the job?
- How can we do better?
- Can we resolve global issues?
3 solutions to how much is too much
- efficient standard = benefit-cost
- safety standard = reduce pollution to “safe” level (people have a right to healthy protection)
- sustainability standard = protect natural ecosystem (increase consumption does not come at expense of other = future generations)
2 obstacles gov face
- imperfect info
- opportunity for political influence
conservative vs progressive
conservative: no gov bc gov only for gov interest
progressive: gov can serve general interest. but, unequal distribution of wealth and power
2 solutions to how can we do better
- incentive-based regulation
- promotion of clean tech
cap-and-trade
setting a limit on the total amount of CO2 emissions allowed
- rich countries can purchase emission allowances from poorer countries that have surplus allowances or have reduced their emissions below the allocated cap
- countries want to sell their surplus to invest in clean tech
utility function
relationship between consumption of goods and an individual’s happiness
Usomeone = #tomatoes, #DVDs etc
–> what has biggest weight????
–> if we add pollution to equation, it decreases
social welfare function
sum of individual utility function
measure overall well-being
assumption of equal marginal utility
assume that we all get the same value in increase in consumption
–> is that true??
