Midterm Flashcards
Explain Circular Flow
- neoclassical economics
- model depicting how money flows through the economy. –consisting only of households and firms.
- Money flows to workers in the form of wages and money flows back to firms in exchange for products.
Define/explain neoclassical Economics
- called conventional economics
- supply and demand
- tries to be positive (describes reality)
- not normative (doesnt say what should be done)
Define Welfare Economics
- normative (describes reality)
- an extension of neoclassical economics
- concerned with well-being and distribution (equity)
Define environmental economics
Neoclassical economics that accounts for emissions or wastes during production
Define resource Economics
Neoclassical economics
-accounts for the depletion and optimal use of renewable resources
Define Microeconomics
individual and business decisions
Define Macroeconomics
Country and government decisions
What is behavioural economics
letting the data describe human behaviour
-not theory
Explain Production
- process of inputs transformed into goods/investment
- as durable, human, intellectual or social capital
Explain consumption
using good/services to satisfy needs and wants
Explain consumption
using good/services to satisfy needs and wants
What are the characteristics of ecological economics
- strong sustainability
- Limits to growth
- Human Behavior
- Equity
- Interdisciplinarity
Explain strong sustainability
Human capital cannot substitute fro natural capital (normative)
Explain limits to growth
the law of thermodynamics limit the growth we can have “development” is a better idea than “growth”
Explain human behaviour as a characteristic of ecological economics
We are not just “rational actors” or selfish optimizers, we can derive happiness from a variety of sources
Explain equity as a characteristic of ecological economics
consider the distribution of impacts in present (intergenerational) and future generations (intergenerational)
Explain interdisciplinary as a characteristic of ecological economics
complex problems require insights from multiple disciplines (or transdisciplinary)
What is the growth paradigm
-One direction is: higher GDP =Higher welfare per person
What is Human Based Capital
people, machines, factories
Explain natural capital
the ways nature powers production
What is an example of a flow pollutant
Noise
-High absorptive capacity
Give an example and define of a CAC
Criteria air pollutants
-CO, NOx, O3, SOx, PM10, PM2.5, Pb, VOCs,
Give examples of GHGs
CO2, CH4, O3, N2O, Halocarbons (CFCs)
Give examples of ozone depleting pollutants
CFCs
Give examples of Water pollutants
SO2, NH4, N/P, heavy metals, pesticides
Give examples of POPS
DDT, PCBs
Describe using oil from a pipeline using terms such as “Cumulative/stock”, “episodic”, “local”, “non-point source”, and “global” you can choose 2
Global and cumulative/stock
Describe a marine oil spill from a tanker using terms such as “Cumulative/stock”, “episodic”, “local”, “non-point source”, and “global” you can choose 2
local and episodic (Also stock pollutant)
What is GNP
Gross NAtional Product
- value of output
- produced by domestically owned factories
- This is regardless of where production occurs
True or false: GNP only cares about where the factories are owned and not where production occurs
true
What is GDP
Gross Domestic product
- value of output
- produced by factories in the domestic economy
- equal to the sum of all the factor incomes arising in the domestic economy
What is the equation for GDP
GDP = private consumption + gross investment + government spending + (exports – imports)
What is the equation for GDP
GDP = private consumption + gross investment + government spending + (exports – imports)
What are some arguments people may say in favour of growing GDP
- Reduces Poverty
- Increases literacy
- reduces unemployment
- slows population growth (reduces fertility rates)
- Reduces environmental degradation
Whats is an EKC
An Environmental Kuznets Curve
-Looks like a hill where per cap income (X) increases environmental degradation (y) then hits a turning point and starts to decrease env deg
Explanations for EKC
- emissions increase as a country industrializes
- then they can afford more efficient technologies
- citizens develop “pro-env” values
- citizens vote for pro-env govs
- gov puts in place in laws institutions that are pro-env
True or false: EKC may depend on scale of pollution
true
What does GDP not account for
- resource depletion
- env deg
- equity/distribution
- social probs (crime)
- non-market services (clean air)
What types of capital are there
- physical
- intellectual
- human
- natural
Describe weak sustainability
- natural and human capital are perfect subs
- technology will fix our problems
- deal with env issues as needed
What is strong sustainability
-Both natural and human capital compliment are needed and each other
What is strong sustainability
-Both natural and human capital are needed and compliment each other
What is strong sustainability
- Both natural and human capital are needed and compliment each other
- transformation, and reassessment of values and lifestyle
- integrated holistic approach
What is strong sustainability
- Both natural and human capital are needed and compliment each other
- transformation, and reassessment of values and lifestyle
- integrated holistic approach
Would you consider this quose weak or strong sustainability?
“meet the needs of the present without compromising the ability of those in future generations to meet their own needs
Weak
Would you consider this quote weak or strong sustainability?
““each generation should leave water, air, and soil resources as pure and unpolluted as when it came on the earth”
Stong
What are Daly’s steady state principles
- Renewable resources
- Nonrenewable resources
- Emissions dont exceed assimilative capacity
- limit scale of human activity
- focus on qualitative growth
What are some alternatives to GDP
- Genuine Progress Indicator (GPI)
- Gross National Happiness
Explain GPI
Genuine Progress Indicator
Considers:
- Income distribution
- Volunteer Work
- Family Breakdown
- Crime
- Resource Depletion
- Pollution
- Loss of farmlands/wetlands
Define the primary assumptions of demand in neoclassical economics
- people are rational (have established preferences for different behaviours and products)
- individuals act to maximize utility (firms to maximize profit)
- Perfect information (consumers know all they need to know about all available options)
- No costs.benefits are “external”
Define the primary assumptions of supply in neoclassical economics
- perfect competition among sellers (no barriers to entry)
2. No transaction costs (costs involved in reaching and implementing an agreement )
Define Utility
- Human satisfaction or well-being
- Typically measured as willingness-to-pay (WTP)
Define own-price elasticity
Change in quantity demanded resulting from price change (typically a negative number)
How would you calculate own-price elasticity
- unit free
- %delta quantity demanded divided by %delta price
- E=(deltaQ/Q)/(delta P/P)
What are complements in demand
Two goods used together
-i.e. cherios and milk
What are substitutes in demand
two goods that can be used as subs for eachother
-milk and almond milk
What is short run supply
period of time which a firm is unable to change at least one of its inputs
What is long run supply
the period of time during which a firm is able to change all of its inputs (capital and labour)
What are total costs
costs for all units produced so far
What are marginal costs
additional costs to produce on more unit
What is the law of supply
as the price of a good or service increases, suppliers will choose to offer more of it, all things being equal
Define Marginal (and how it affects behavior)
Refers to the ‘next’ unit of supply and demand
What is WTP
how much youre willing to give up to obtain a good (function of utility and income)
-measures consumer value
True or False: a demand curve, MWTP and marginal benefit curve are all the same thing
True
What are some issues with WTP
- Based on wealth or income (ability to pay)
- Challenges of monetization
- Inherent uncertainty
- `Preferences may be unknown, and can change
What is the law of demand
They have an inverse relationship (as price falls quantity demand will rise
What are the main reasons for the law of demand
- You consume more of a good when its cheaper
2. decreasing marginal utility: as you get more of a good you value the next (marginal) unit less
What does it mean if the price is elastic
quantity demanded changes a lot as price changes
What does it mean when the price is inelastic
quantity demanded changes little as price changes
What are opportunity cost
the value of the best foregone alternative
What are social costs
the total costs (impacts) incurred by all agents affects (including externalities)
What are social costs
the total costs (impacts) incurred by all agents affects (including externalities)
What are some things that cause supply curves to shift
- technology
- # of sellers
- Input prices
- Taxes and subsidies
- expectations of costs
What is the law of supply
as price of a good/service increases, suppliers will choose to offer more of it
What is the Law of demand
quantity purchased varies inversely with price; the higher the price, the lower the quantity demanded
Explain market equilibrium
- everyone is happy
- no excess demand or supply
Explain consumer surplus
difference between what consumers are willing to pay and what they actually pay
Explain producer surplus
difference between amount a producer receives and the minimum amount the producer is willing to accept
Explain total welfare
The sum of consumer and producer surplus
Is it called a surplus or shortage when the price is too low
SHORTAGE
What is deadweight loss
loss of economic efficiency that can occur when eq for a good /service is not achieved
Is it called a surplus or shortage when the price is too low
SHORTAGE
What does Pareto efficient mean?
economically efficient
what is coase theorem
assigning and enforcing property rights to correct for an externality
what is public goods
- pay for it with taxes
- cant exclude anyone
- i.e. lighthouses and national parks
What is positive externality
producing or consuming activity creates a benefit to a third party
- (good home maintenance increasing neighborhood property values)
How do you correct for a negative externality
you decrease the quantity and increase price to bring it back to eq
How do you internalize an externality
- put a price on it
2. assign property right (coase theorem)
What is a pigouvian tax
a tax that reflects the externality (this makes the private costs = to social costs)
What are some issues with a Pigouvian Tax
- setting the tax at the right level to achieve desired outcome
- equity concerns
- politically difficult
- the price is certain but the outcome isnt
What are the key assumptions of Coase Theorem
- clear and enforced property rights
- low/zero transaction costs
- no wealth/income
- transparent information on costs and benefits externality
What is the trickiest part of the coase theorem
efficient allocation of resources doesnt depend on who receives property rights
Define Excludable
it is possible to exclude others from consuming
Define Rival
use of the good by one person detracts from use by others
What are some public policies to address the tragedy of the commons `
- assign property rights
- pigouvian tax
- establish coercive laws (i.e. seasonal fishing)
- develop self gov (i.e. fisheries with voluntary limits)
What are they types of market failure
- externality
- common property
- public good
What are they types of market failure
- externality
- common property
- public good
explain cost benefit analysis (CBA)
a way of valuing costs and benefits in order to choose the one with the highest net benefit (NPV) and highest ratio of benefits to costs (BCR)
-putting costs/bens in the same units (i.e. 2015 dollars)
What is a discount rate
Thediscount rateis arateused to convert future economicvalue into presenteconomicvalue.
why use discounting
- time value of money (invested today and earn later)
2. pure time preference (people are biased towards the present)
What is the difference between compounding and discounting
compounding = future value of present money
- discounting = present value of future money
What is the difference between compounding and discounting
compounding = future value of present money
- discounting = present value of future money
What are the steps of a cost benifit analysis
- specify project
- determine inputs and outputs
- value non market costs and benefits in monetary terms
- compare (convert everything to equivalents, apply decision rule, sensitivity analysis, recommend)
What is a social discount rate
discount all future costs and benefits to present (same units )
