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Environmental Economics > Final > Flashcards

Final Flashcards

1
Q

Define Economics

A

understanding the processes that govern production, distribution and consumption of goods and services (in an open market).

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2
Q

Define Neoclassical Economics (conventional)

A

environmental economics and natural resource economics

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3
Q

Define Environmental Economics

A

“economy in the environment”

-Focus on amenities and wastes

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4
Q

Define weak sustainability

A

Natural and human-based capital are perfect substitutes

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5
Q

Define Strong sustainability

A

Natural and human capital are complements (both required)

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6
Q

What is GDP

A

value of output produced by factors of production (producers) located in the domestic economy and equal to the sum of all of the factor incomes arising in the domestic economy

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7
Q

What is the equation for GDP

A

GDP = private consumption + gross investment + government spending + (exports - imports)

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8
Q

What does GDP not account for

A
  • resource depletion
  • environmental degradation
  • equity or distribution
  • social problems (crime)
  • non-market services (clean air)
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9
Q

What are the key assumptions on the demand side of neo classical economics

A
  1. people are rational: have established preferences for different behavious and products
  2. Individuals act to maximize utility (and firms to maximize profit)
  3. Perfect information: consumers know all they need to know about all available options
  4. No consideration for external costs/ benefits
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10
Q

What are the key assumptions on the supply side of neo classical economics

A
  1. Perfect Competition among sellers (no barriers to entry)

2. No transaction costs

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11
Q

What type of relationship does price and quantity have?

A

An inverse one

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12
Q

fill in the blank: as price falls quantity demanded will __

A

Rise

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13
Q

What are the main reasons for the inverse relationship between price and quantity

A
  1. you may consume more of a good when its cheaper
  2. Decreasing marginal utility: (as you get more of the good, you value the next (marginal) unit less (or decreasing marginal willingness to pay – MWTP)
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14
Q

What are the changes that shift a demand curve

A
  1. Number of buyers
  2. Preferences/ tastes
  3. Incomes
  4. Price of other goods (complement/ substitute)
  5. Consumer expectations (price and income)
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15
Q

True or false: a shift in demand curves are similar to change in quantity demanded

A

False: they are distinct from each other

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16
Q

Are supply curves and MC curve the same?

A

Yeah, they both show the quantity of supply of a product by a firm at each possible price

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17
Q

What does MC curve mean

A

Marginal cost curve

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18
Q

What is the law of supply

A

All else equal, if the price of a good increases, the supplier will supply more of the good

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19
Q

Why do marginal costs increase?

A
  1. lowest cost production occurs first

2. more expensive production occurs later

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20
Q

What are the causes of shifts in supply curves?

A
  1. technology
  2. number of sellers
  3. input (resource) prices
  4. taxes and subsidies
  5. expectations of costs
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21
Q

True or false: shifts in supply curves are distinct from movements up and down a supply curve (or quantity supplied)

A

true

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22
Q

Market equilibrium: the area above the price eq

A

the consumer surplus

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23
Q

Market equilibrium: what is the area below the price equilibrium

A

The producer surplus

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24
Q

When do free markets produce an efficient allocation of resources

A
  1. good information on consumption benefits and costs (perfect information)
  2. Large number of buyers and sellers (perfect competition)
  3. Each transaction affects only the buyer and seller (no externalities)
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25
Q

What is it called when free markets dont meet all these conditions

A

MArket failure

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26
Q

What are the different types of market failure?

A
  1. externality
  2. common property resource
  3. public good
    (there are more then this)
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27
Q

What is an externality?

A
  • transaction about third party
  • third parties preference (e.g. WTP) not expressed in the transaction (or market)
  • free market outcome is inefficient (loss of welfare)
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28
Q

True or false: externalities can only be negative

A

False, they can be positive too

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29
Q

What is an example of a negative externality

A

producing or consuming activity imposes a cost on a third party
-i.e. pollution that arises during production, congestion from driving, fishing by a company depletes fishery stocks

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30
Q

What is an example of a positive externality

A

Producing or consuming activity creates a benefit to a third party
i.e. Research and development and spillover of ideas, immunization and public disease resistance, good home maintenance and high neighbouring property values

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31
Q

What are ways to internalize an externality

A
  1. put a price on it

2. Assign property rights

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32
Q

Explain how you could put a price on an externality to internalize it

A
  • using a pigouvian tax (a tax reflects the externality)

- make the costs private = social costs

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33
Q

Explain how you could assign property rights to internalize an externality

A
  • coase theorem (assign and enforce property rights)

- in theory, it doesnt matter which party has those rights (could be “right to pollute” or “right not to pollute”)

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34
Q

What are the two factors that define the classes of goods

A

Excludable and rival

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35
Q

What does excludable mean

A

it is possible to exclude other individuals from consuming the good

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36
Q

What does rival mean

A

use of the good by one person detracts from use of the good by another person

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37
Q

What class of good is it if its excludable and rival

A

it is a private good (toast)

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38
Q

What class of good is it if its not excludable or rival

A

it is a public good (light house)

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39
Q

What class of good is it if its excludable but not rival

A

club goods (cable tv, fishing on a well stocked pond)

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40
Q

What class of good is it if its rival but not excludable

A

common property (grazing lands)

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41
Q

What does the provision of a public good produce

A

a negative externality

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42
Q

What does the provision of a public good produce?

A

a positive externality

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43
Q

What are they types of trade off analysis

A
  1. cost-benefit analysis
  2. Cost-effectiveness analysis
  3. Uncertainty analysis
  4. multi-attribute tradeoff analysis
  5. energy-econmy modelling
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44
Q

Explain a CBA (cost-benefit analysis or discounted cash flow analysis)

A

-Systematically comparing costs and benefits over time by putting then into a single unit (e.g. 2012 dollars)

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45
Q

What is the goal of a CBA

A

Economic efficiency

  • total benifity should exceed total costs
  • distribution of costs/benefits is NOT the focus (benefits > costs possible but some people may still be fucked around)
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46
Q

True or false: the goal of a CBA is the distribution of costs/benefits

A

False, Project could have benefits > costs, but still make some people worse off

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47
Q

What are the steps of a cost benefit analysis

A
  1. specify the project (options, scale and perspective)
  2. Determine inputs and outputs of the project
  3. value non-market costs and benefits in monetary terms
  4. compare the costs and benefits (discount future costs and benefits to present values, apply decision rule, conduct sensitivity analysis, make recommendations)
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48
Q

What are the limitations to a CBA

A
  1. Uncertainty (financial costs are uncertain, non-market values are difficult to monetize, ecosystem complexity, future costs/benefits)
  2. assumes “weak sustainability”
  3. ignores distribution of costs and benefits (equity)
  4. Ignores marginal utility of money (different valuation across different income groups)
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49
Q

What does TEV stand for?

A

Total economic value

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50
Q

What does a TEV consider

A
  1. direct use values
  2. indirect use values
  3. non use values (value of no present consumption)
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51
Q

What does it mean for a TEV to consider direct costs

A
  • extractive (e.g. harvesting)

- non extractives (recreation)

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52
Q

What does it mean for a TEV to consider indirect use values

A

ecosystem services like soil retention, climate stabilization, water management and life support

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53
Q

What does it mean for a TEV to consider non-use values

A

-existence value (ethical feeling for existence, e.g. polar bear)

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54
Q

What are the ecosystem services categories

A
  1. provisioning services
  2. regulating services
  3. cultural services
  4. Supporting services
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55
Q

What are examples of supporting services

A
  • nutrient cycling
  • soil formation
  • primary production
56
Q

What are examples of provisioning services

A
  • food (crops/livestock/wild food)
  • fiber (timber/cotton/hemp/silk/wood fuel)
  • Genetic resources
  • biochemicals/natural medicines/ pharmaceuticals
  • fresh water
57
Q

What are examples of regulating services

A
  • air quality regulation
  • climate regulation
  • water regulation
58
Q

What are examples of cultural services

A
  • aesthetic values
  • spiritual and religious values
  • recreation and ecotourism
59
Q

In the TEV categories (1. direct, indirect and non-use) where does provisioning services fall

A

direct use

60
Q

In the TEV categories (1. direct, indirect and non-use) where does regulation services fall

A

indirect use

61
Q

In the TEV categories (1. direct, indirect and non-use) where does cultural services fall

A

non-use

62
Q

What are the two primary categories of techniques for valuations

A
  • Revealed preference

- stated preference

63
Q

Explain revealed preference

A

observed in market (real)

64
Q

Explain stated preference

A

Elicited from consumer (hypothetical)

65
Q

What are the sub types of valuation methods that fall under reveaved preference

A
  • market prices (market based)
  • avoided costs (market based)
  • Hedonic pricing (surrogate markets)
  • travel cost (surrogate markets)
66
Q

What are the sub types of valuation methods that fall under stated preference

A

Contingent valuation (non-market based)

67
Q

What is the martinal damage cost (MDC)

A

Relationship between quantity of pollutant and marginal damage it causes

68
Q

Fill in the blank: typically marginal damage increases with _____ emissions

A

increased

69
Q

What are the factrs that influence damage cost

A
  • pollutant
  • region
  • climate
  • timing
  • cultural values
  • income levels
70
Q

A curve showing damage on the y-axis and emissions on the x-axis: where do you find the total damage cost

A

area under the curve.

71
Q

What does the height of the marginal damage curve show

A

how much total damages change if there is a small change in the quantity of emissions.

72
Q

What are abatement costs

A

cost of reducing environmental negatives such as pollution

73
Q

What does a marinal abatement cost curve show

A

the marginal cost of additional reductions in pollution

74
Q

What does MAC stand for?

A

Marginal abatement cost

75
Q

What are some ways to reduce emissions or damages

A
  • reduce production
  • changing inputs
  • altering production technology
  • treating emissions
  • changing source location
76
Q

Fill in the blanks: Abatement costs function starts at ______ then slopes ___ to the ___

A

uncontrolled, up, left

77
Q

Where are the total abatement costs on an abatement cost curve

A

area under the curve

78
Q

What are the best abatement costs to start with

A

the cheap one, then move to the more expensive

79
Q

When is there optimat pollution

A

Where the MDC and MAC meet (where the marginal damage curve and the marinal cost curve meet)

80
Q

What are the limitations to “optimal” pollution

A
  1. uncertainty
  2. assumes weak sustainability
  3. ignores distribution of costs and benefits (equity)
81
Q

What is the uncertainty in the optimal pollution model

A
  • MDC & MAC can be very difficult to estimate (intangible, non-market values)
  • Assumes MDC and MAC
82
Q

What are three alternative perspectives to optimal pollution model

A
  1. show MAC and MDC with uncertainty
  2. Just set an absolute standard (safe minimum standard -SMS)
  3. Determine limits of what is affordable and what is SMS
83
Q

What are some arguments in favour of the alternatives to the optimal pollution model

A
  • Due to large uncertainties in cost (especially damages) economists should play limited role in setting environmental targets
  • instead, scientists should help set targets, economists focus on policy
84
Q

Explain the term goal in the context of policy evaluation

A
  • What you aim to achieve

e. g. 80% reduction in GHG emissions

85
Q

Explain the term policy in the context of policy evaluation

A
  • government laws or action implemented to achieve social goals (public policy)
    e. g. carbon tax
86
Q

Explain the term actions in the context of policy evaluation

A

what is done in order to meet the env gal and/or comply with policy
e.g. buying an electric vehicle

87
Q

What are the criteria for evaluating policy

A
  1. effectiveness
  2. efficiency
  3. fairness (or equity)
  4. simplicity
  5. acceptability
88
Q

What does effectiveness mean in terms of policy evaluation

A

achieves env goal (avoids side effects)

89
Q

what does efficiency mean in terms of policy evaluation

A

equi-marginal principle, cost effectiveness

90
Q

what does fairness (or equity) mean in terms of policy evaluation

A

equitable distribution of costs and benefits or meeting minimum level of basic rights

91
Q

what does simplicity mean in terms of policy evaluation

A

administrative feasibility

92
Q

what does acceptability mean in terms of policy evaluation

A

political support

93
Q

What are the two equimarginal principals

A

1. marginal cost of the last unit abated is equal to the marginal damage cost (optimal pollution)

94
Q

Why is managing fisheries so difficult

A
  • Market failure (common pool resource)
  • Ecological complexity
  • Public and political acceptability of policy
95
Q

Explain market failure regarding the management of fisheries

A
  • open ocean (no property rights beyond 200 miles of land)

- Lack of property rights in come lakes and rivers

96
Q

Explain ecological complexity regarding the management of fisheries

A
  • population thresholds and collapse (and uncertainty)
  • biodiversity
  • genetically distinct sub groups
  • migratory species (e.g. tuna/sword fish)
  • difficult to “see” the fish
97
Q

Explain public and political acceptability of policy

A

traditions of lifestyle and community reliance for income

-clout of fisheries interest groups

98
Q

What does a growth curve look like?

A

Bell curve with a dip below the x-axis right before the y-axis

99
Q

what is MSY

A

maximum sustainable yield - largest average catch that can be captured from a stock under existing env conditions

100
Q

What is the y and x axis on a growth curve

A 
y = annual growth rate 
x = stock (total population)
101
Q

what does the the dip below the x-axis on a growth curve represent?

A

extinction

102
Q

What is a typical MSY

A

20-50% of max stock

103
Q

What are some examples of real world ecological complexities reduce the accuracy of a growth curve

A
  • multiple fish species that affect each other (trophic levels)
  • other ecosystem interactions
  • migratory species
104
Q

How do you regulate fisheries

A
  1. open access regulations (manage effort)

2. limit entry regulations

105
Q

what is the objective of regulating fisheries

A

sustainable efficient fishing

106
Q

regarding the regulation of fisheries, what does open access regulations mean?

A
  • technology restrictions (boat size, gear limits)
  • size and weight limits for fish
  • when fish are caught (season limits)
107
Q

regarding the regulation of fisheries, what does limited entry regulations mean?

A
  • individual tradable quotas (ITQs)

- Exclusive spacial harvest rights

108
Q

What does ITQ stand for

A

Individual tradable quotas

109
Q

What are the pros of ITQ policy

A

(Individual tradable quotas)

  • can be effective (1/2 likelihood of fishery collapse)
  • efficient (established property rights, incentivizes careful/efficient fishing
110
Q

What are some cons of ITQ policy

A

(individual tradable quotas)

  • equity (how to allocate permits/quotas)
  • can lead to “high-grading”
  • does hurt local fisheries (e.g. if investors buy up all the quotas)
  • uncertainty around determining total allowable catch
111
Q

What are the factors that influence the changes in estimates for non renewables

A
  1. used over time
  2. new discoveries
  3. changing price/technology
112
Q

What are the two main perspectives on fossil fuel supply and demand

A
  1. peak oil (hubberts curve)

2. neoclassical perspective

113
Q

explain the peak oil perspective for fossil fuel supply and demand

A
  • geologists perspective
  • technology is static
  • once we pass peak oil consumption then economic and social catastrophe
114
Q

Explain the neoclassical perspective on fossil fuel supply and demand

A
  • argues that hubbert’s curve doesnt account for
  • technology change and dynamics
  • international dynamics
  • market feedbacks and price signals
115
Q

Are we running out of fossil fuels?

A

yes we will eventually but CC will effect us before that..

116
Q

What is backstop fuel

A

many subs for oil as prices rise (this includes changing the definition of oil)

117
Q

Explain optimal allocation over time

A

-saving some of the resource for future consumption increases profits to the firm and increases overall social efficiency

118
Q

in the context of optimal allocation over time, what is social efficiency?

A

optimal distribution of resources in society, taking into account all external/internal cost/benefits

119
Q

What is an opportunity cost

A

consuming a unit of a non renewable resource today carries this cost, the value of keeping the resource and selling it in the future

120
Q

What does the present consumption of a non renewable imply

A

a user cost on future generations

121
Q

What is a user cost?

A

a cost associated with the loss of future potential uses of a resource, resulting from consumption of the resource in the present

122
Q

what is one way of internalizing the externality of a user cost

A

a resource depletion tax

123
Q

What is Hotelling’s Rule

A

to maximize benefit of an exhaustible resource endowment, it should be extracted such that its “net price” rises over time at the rate equal to the rate of interest

124
Q

According to Hotelling’s rule predict the future net price will increase if its an exhaustible resource

A

exponentially

125
Q

In Hotelling’s rule the net price = ___ - ____

A

=price - marginal extraction cost

126
Q

What are other words for net price

A
  • marginal net revenue

- profit

127
Q

What was the suggestion made by Hotelling

A

deposits of exhaustible resources (e.g. oil) should be viewed as an asset like any other income producing investment

128
Q

According to Hotelling, what is optimal resource depletion dictated by

A

interest rate

129
Q

according to hotelling, what does a high interest rat incentivise

A

using the resource quickly (have the effect of weighting present benefits much more heavily then future benefits)

130
Q

according to hotelling, what does a low interest rat incentivise

A

conservation

-have the effect of weighting future benefits much more heavily then present benefits

131
Q

What is dynamic efficiency

A

“net price” rises over time at the rate of interest

132
Q

what factors result in hotelling ‘s rule not being observed in empirical cases

A
  • changing estimates in reserves
  • changing definitions of oil
  • tech change
  • cheaper alternatives
133
Q

What is scarcity rent

A
134
Q

What is Hartwick’s rule

A

invest resource rents

-nations should invest all rent earned from exhaustible resources into other capital

135
Q

What it the purpose of Hartwick’s rule?

A

to keep the standard of living for intergenerational equity

Environmental Economics (2 decks)

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