L6 - Methods and tools 2: Energy economics Flashcards
What is variable cost?
A variable cost is a corporate expense that changes in proportion to how much a company produces or sells.
What is fixed cost?
Fixed costs are expenses that have to be paid by a company, independent of any specific business activities.
What is discounting?
Discounting implies that future costs and revenues are worth less (discounted) compared to costs and revenues that occur today.
What happens with the relative cost from different electricity sources if the discount rate is lowered?
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What is the demand function?
A demand function is a list of prices and the corresponding quantities that individuals are willing and able to buy at a fixed point of time
What is the difference between cost and price?
Cost is typically the expense incurred for making a product or service that is sold by a company. Price is the amount a customer is willing to pay for a product or service.
What is social costs? What does it lead to?
- Social costs are not borne by the producer of the electricity but by other societal groups (hence external costs)…
- External costs can be both positive and negative, but in energy it typically relates to environmental damages such as air pollution, GHG emissions, noise pollution…
How should the tax prices be set?
1) Estimate the marginal cost of environmental damage
2) Set the price so that a given environmental outcome is reached (e.g., max 2 C warming), possibly through a cap on emissions.
What is scarcity rent?
If there is a finite supply of a good and demand exceeds this supply, the difference between the price paid and the cost for the good is referred to as a scarcity rent.
What is opportunity cost?
- The cost of using an input to do one thing instead of another
- The opportunity cost of one action compared with another is determined by comparing the potential benefits of each action.
