econ test 1 Flashcards
dynamic efficient management of a fishery is complicated by
mobility of the fish
for dynamic efficient management, recognizing non market values typically means
more conservation
there is less incentive for a harvester of fish to conserve because
there is no guarantee that any conserved fish will be available for harvest in the future
for dynamic efficient management of a natural resource, an increase in the interest rate should
reduce conservation
the existence of non market values for a renewable resource
implies overuse of the resouce
when the growth in value of a renewable resource is less than the rate of interest, then the economic decision that maximizes the NPV is
harvest
all other things equal, an increase in the cost of replanting trees
increases the optimal rotation time
the economically efficient harvest in a forest
maximizes the NPV of the forest
site value is
the value of the land in its best use
an alternative technology should eventually cause the MUC of a non-renewable resource to
remain constant
when the growth in value exceeds the rate of interest
NVP increases by postponing use
sustainable use of a non-renewable resource is
literally not possible
a renewable resource is one in which
a population or stock may naturally increase
the four categories of market failures are
externalities, market power, public goods, and imperfect formation
when there is a negative externality associated with the production of a good or service then the market will typically produce
too much of a good or service
an externality is an example of
so incomplete market
a public good is an example of
an incomplete market
the tragedy of the common is characterized by a
non-excludability and negative externalities by users
marginal user cost is
the PV of the cost of the unavailability of that amount in the future
the net present value of a natural resource is maximized when its use
gv=r
a public good has the characteristics of
non excludability and non rivalry use
scarcity rent refers of
the marginal user cost
efficient free market equilibrium
maximize the sum of consumer and producer surplus
a competitive market is one in which
there is no market power- all market participants take the market price as given
a cognizant market is one in which
all relevant information is available
a complete market is one in wich
all relevant costs and benefits are borne by participants
pareto efficiency occurs when
there are no possible Pareto improvements
the economically efficient level of pollution is always
> = 0
cost refers to
whar is given up
the law of diminishing returns means that
MB and MC will eventually intersect
net benefits are
maximized when marginal benefit equals marginal cost
dynamic efficiency refers to
applying the rules of economic efficiency over time
characteristics of fisheries
mobility - they move
lack of jurisdictions - difficulty in forming census
lack of property rights.- hard to enforce boundaries
gv> r
npv increases if conserves
gv< r
decrease npv - should have been used
issues with dynamic management of species
cant manage access to harvesting and the quality of the ecosystem
methods of managing harvesting
establish property rights
raise the cost of harvest - tax what they’ve caught
regulate technology used - boat, nets etc.
forests are relatively immobile
makes assessments of size easy to tell of growing or shrinking
the decisions to harvest requires a subsequent decision to
replant or not
faustmann’s rotation
when land can be planted an unlimited number of times
-interested in the value of the land
gv=r
steady-state model
the fish population remains the same from period to period, thus the fishing harvest is equal to net growth of the stock
Forests are relatively slow growing
planning and harvesting times require patience
forests have multiple conflicting uses
output of wood, habitat, ecological, recreation and agriculture
Wicksell rotation
refers to the age at which a stand of even-aged tress will be harvested at one time one (one harvest)
- interested in the volume of timber
gv= r
nvp is maximized
gv> r
post pone use
gv <r
waited to long to harvest
sustainable use for a renewable resource
cant run out or exhaust
sustainable use for a nonrenewable resource
it can run out and exhaust
weak sustainability
the use of a natural resource or a waste processing service faster than it is generated by the environment can be sustainable if these losses are offset by an increase in either economic capital or social institutions
strong sustainability
the value of the remaining stock of natural capital should not decrease
environmental sustainability
developing strategies and practices that create a world economy that the planet can support indefinitely
usage of natural resources is affected by
interest rate, demand, recycling, alternative technologies
property rights
the ability of an individual to own and exercise control over scarce resources
property rights a part of a
complete market
exhaustible resources have
no externalities of any type
user of some exhaustible resources generates some
negative externalities
renewable resources
maximization of NPV of any captial asset
GV > R
not using allows NPV grow
growth of non market value 1
it is hard to measure
growth of nonmarket value 2
usually not captured by the users
growth of nonmarket value of 3
easily ignored
history of owner ship
exhaustible resources are owned
are renewable resources owned
spotty history with ownership but they are used
mobility (exhaustible resources)
immobile
exhaustible resources are
non renewable resources
mobility
renewable resources can be mobile or immobile
nonrenewable resources tend to have positive
non market existence value
renewable resources can grow in value from
growth in population, size of units, and health of the population
the hotelling rules state that
the optimal extraction rate of nonrenewable resources maintains an asset market equilibrium in which the rate of return to stocks in the ground equals the rate of return to alternative investments
marginal user cost
the opportunity cost of future consumption that is foregone when on more unit of a resource is extracted in the current period
basic model 1
demand is constant
basic model 2
no alternative technology
basic model 3
known or fixed amount
basic model 4
MEC is constant
marginal efficiency or capital
the rate of return of the extra profit earned from the last unit of capital employed
marginal user cost grows by ____ each period
r
if one can achieve a goal through various costly activities, the cost is ___ when MC is ___ per activity
minimized, equal
if R increases
future use is less valued than the current use
new alternative technology
higher prices provides incentives for searching for new deposits (new way to produce)
simple model 1
demand is constant
simple model 2
no alternative technology
simple model 3
reserves are fixed/know
simple model 4
MEC is fixed
simple model 5
R is constant
rate of growth will be _ when recycling and the _ will decline slowly
slowed and use
net present value
the present value of current and future benefits minus the present value of current and future costs
positive externality
a benefit received by someone who had nothing to do with the activity that generated the benefit
private goods
goods provided by private businesses that can be used only by those who pay for them
public goods
goods such as clean air and clean water that everyone must share
the tragedy of the commons
the notion that any resource that’s open to everyone, like air, or part of the ocean, will eventually be destroyed because everyone can use it but no one is held responsible for preserving it
marginal user cost
extra cost of using a non renewable resource that could have been used in the future
time value of money
idea that future money has less value then available capital
static efficiency
making the most of your resources at a given time
dynamic efficiency
markets’ ability to promote cost-reducing or product-enhancing technological change
- facebook was popular but then instagram came so facebook has to keep updating its production/ technology and lowering the cost to keep consumers
law of diminishing returns
states that successive increases in inputs eventually lead to less additional output
-if it takes 5 hours to do hw and i only get 10 points, it will marginal decline
marginal benefit
the additional benefit consumer from consuming one more unit of a good or service
economic efficiency
optimal production and distribution of scare resources
net benefit
the difference between the marginal benefit and the marginal cost of an option
pareto improvement
an action that makes at least one person better off, and harms no one
pareto optimality
a distribution of things such that no one can be made better off without someone becoming worse off
what makes a market economically efficient?
when it is complete, cognizant and competetive
complete market
where all benefits and all costs associated w the market activity only applies to the market participant
competitive market
a market in which there are many buyers and sellers of the same good and service, none of whom can influence the price at which the good and service is sold
cognizant market
all markets have access to all relevant information for products
demand curve
shows the amount consumers are willing and able to purchase at various prices
supply curve
the amount of producers are willing and able to sell at various prices
demand curve slopes
up
market equilibrium
a situation in which quantity demanded equals quantity supplied
the economically efficient level of pollution is always
greater than and equal to 0
all market based information for environment work by
forcing the relevant parties to internalize the external costs
market-based approaches to negative externalities
reduce deadweight loss
coase therom
shows that participants may reach an economically efficient outcome in limited circumstances
a potential barrier to achieving the efficient level of an externality through voluntary incentives is
-a large number of participants
- realizations on the part of generators and victims that they are participants
placing a fee or tax on a negative externality
-provides an incentive to innovate
-reduces the deadweight loss from the externality
- provides for the potential for a double dividend
creation of efficient property right structures
may achieving the efficient outcome under limited circumstances
a tax on emissions of 5 is instituted to achieve a target of emissions Et we know
MAC = 5 for all emitters
A tax on emissions of 5 is instituted to achieve a target level of emissions Et. We know
MDF= 5
major sources of inefficiency in the management/ use of species and fisheries are
- species are usually common property resources, so that there is no economic incentive
- inefficient property rights in those cases where species are not common property
- externalitys
- poorly designed public policy that may inefficiently raise the cost of harvest
how to alleviate those inefficiencies in fisheries
- properly designed harvesting taxes
- transferable harvesting rights/quotas
- establishment of private marine reserves and
- establishment of 200-mile fishing limits
