ESP 162 Midterm 1 Flashcards
Policy
Process of accessing and deciding among alternatives in public choices based on usefullness.
Analysis
Breaking up of complex whole in components to determine its essential feature.
Policy analysis
Evaluation and study of formulation, adoption, and implementation of principle or course of action
Economics
Study of how society allocates scarce resources.
Environmental economics
Appplication of economic principles to study how scarce environmental resources are (descriptive) and should be (prescriptive) managed
Resource economics
Study of how society allocated scarce natural resources
Economic rationality
Economic agents are optimizers who make choices to max own payoff
Economic incentives
Forces in economic world that attract or repel people causing them to change their behavior in some way (in production or consumption) without inncentives cause decider to “feel” true cost of actions, few volutarily pay for them
Opportunity Cost
What you give up by doing one other thing instead of another. Ex. Study over play games
Scarcity
If offered at no cost, more people would want it than available
Trade-off
Situation when something must be given up obtaining something valued
Externality
Actions of one individual have a direct, unintended and uncompensated effect on the well being of other individuals
Deontological Ethics
Action judged by its intrinsic rightness; it is our duty or moral obligation
Teleological Ethics
Worth of action is determined by degree of instrumental value in meeting goal
Utilitarian Ethics
Net change in utility is positive (max net benefits)
Pareto Efficiency
Economy has resources and goods allocated to max level of efficiency no change made without someone worse off.
Kaldor-Hickd Efficiency
Outcome in which aggregate net benefits are maximized; winners compensate for losers losses. May be winners and losers.
Demand/Marginal benefit/marginal willingness to pay
Max Willingness to pay for one unit increase in quantity of good.
Elasticity
How much demand or cost curves respond to changes concerning variable such as price or state of economy ex gas vs luxry cars. (Volitilty)
Total benefits/total willingness to pay
Total max willingness to pay for some quantity of good. It is the area under MB
Supply/Marginal Cost/Marginal willness to accept
Change in total cost when quantity is increased or decreased by a unit
Total cost
Total cost of supplying some number of units of a good. Area under MC.
Marginal Net benefits
Difference in marginal benefits and marginal cost. MB-MC
Total Net Benefits/Surplus
Difference between total benefits and total cost. TB-TC
Aggregate Net Benefits
Summing individual values to find aggregate’s horizontally for a private good or vertically for public.
Equimarginal rule
Efficient level of abatement occurs where MB=MC
Market
Decentralized collection of buyers and sellers who determine the allocation of goods through exchange
Market Equilibrium
When quantity and price are the same. Supply=Demand
Rational choice
Behavior consistent with the values and objectives of decision makers given the available information.
First Theorem of Welfare Economics (FTWE)
Market results in efficient resource allocation when:
- no externalities
- agents are informed
- markets are competitive (no monopolies)
Market failure
Allocation of goods and services by market is inefficient.
Open Access Resource (OAR)
Common pool resource that is non-excludable and rival (can be used up ex. Fish)
Non-excludable
Open to uncontrolled access by users (absence of property rights)
Excludable
Closed to uncontrollable access by users (private property rights)
Rival
One’s consumption diminishes the amount available to be consumed by others
Non-rival
One’s consumption does not diminish amount available to be consumed.
Pure Public good (vs. private, oar, and club)
A resource that is non-excludable and non-rivalarous.
Nash Equilibrium
Occurs whenever each players’ strategy is best response to the other’s.
Benefit-cost analysis
Estimating net benefits of particular action by estimating costs and benefits often with goal of comparing multiple alternatives
Benefit-cost ratio
Only tells you if policy has net benefits; misleading. Does not tell the magnitude of benefits.
Expected Value
Value used when there is uncertainty. Fore discrete random variable formula is probabilty x weight summed
Discounting/Discount rate
Method of placing weights on future values to convert them into net present values
Willingness to pay vs. willingness to accept
WTP: max money and individual would pay to attain something.
WTA: Minimum compensation tolerated for loss of something.
Use vs non-use value
Use: physically experience or consuming an emvironmental good
Non-use: benefit or pleasure from knowledge that environental good exists without using it. Ex. Existence value (passive use)
Existence Value
Non-use altruistic value from preserving.
Ex. Grand canyon, antartica
Contingent Valuation
Directly asks subjects via survey about WTP or WTA (stated preference)
Revealed Preference Methods
Use of market information or behavior to estimate value of good not directly traded in a market. (Use value only)
Hedonic Pricing
Price of something related to multiple characteristics you can look at differences in prices to assess value of one of those characteristics. Ex. Valuing open space and using real estate prices
Value of statistical life
Use hedonic wage method to estimate value of increased risk of on job mortality. ( riskier job higher salary)
Averting Cost
Revealed preference: looks at willingness to pay to reduce risk or impact of something bad
Travel Cost
Revealed preference: estimating value of amenity by treating the costs incurred to experience it as its price.
Abatement vs Compliance cost
Abatement: out of pocket cost for abatement equipment
Compliance Cost: cost of all policy compliance actions includes abatement cost in cost. Ex: process change
Secondary effects
Outcomes of policy that extend beyond primary market being regulated
Progressive vs. regressive
Progressive: growth for poor incrs wages from bottom. Favor poor
Regressive: greater impact on poor ex. Gas prices favor rich
Regression analysis
Able to quantify relationships between a dependent variable with independent variable. Ex. See if there is a connect on how much you eating and how much you weigh
Partial Equilibrium/Behavioral response vs General Equilibrium/Secondary Effects
Partial Equilibrium: captures behavioral responses, but holds prices constant, limited to burden on directly regulated entities. Ex. Incrs MC for a firm or household
General Equilibrium: Net burden once all good and factor markets have equilibrated.
