Module 2 Flashcards
Economics is concerned with allocating ____ resources among _______ for the _______?
Economics is concerned with allocating scarce resources among competing users for the greatest benefit
Traditional Economics
Uses a set of models and techniques rooted within the standard neoclassical economic theory (marginal analysis) - applied to both non-renewable and renewable resources
Resource Economics
Economics of resource use and extraction
Environmental Economics
Economics of pollution
What does microeconomics consider within an economy?
Individual decision-makers (consumers, households, firms).
What does environmental economics consider?
- measuring costs and benefits that are not represented in market prices and comparing costs of correction
- International resource allocation - use now or conserve for future
- Appropriate property rights - private, public
- cost-benefit analysis
What does macroeconomics consider
It considers broader aggregates such as inflation, economic growth (GDP, national debt, prime lending rate), and unemployment.
Environmental macroeconomics considers
It considers large-scale environmental issues requiring a broader perspective: climate change, the carbon cycle, ozone depletion, biodiversity loss, ecosystem damage, and the nitrogen cycle.
What is the ecological economic approach?
Places economic activity in the explicit context of the biological and physical systems that support life, including all human activities.
- explicit incorporation of environmental carrying capacity - energy supplies, scarce natural resources, cumulative environmental damage.
How would the approach to climate change differ between traditional and ecological economics?
Traditional - balance costs and benefits of avoiding future climate change - estimated in economic terms and maximize net economic benefits
Ecological: examines the physical requirements for a stable climate (CO2 concentrations) and then examines economic measures to achieve this goal.
What must we have to evaluate efficiency?
There must be a way to measure all the costs and benefits of resource allocation.
Economics focuses on the microeconomic problem of getting “prices” correct, where the prices represent the value society ascribes to a particular resource or resource use.
Economic prices serve as ______ that drive decisions made by individuals, groups, and firms
incentives
The consumer role in economic markets is represented by ____ function.
demand function - also called the marginal benefit (MB) function
- the price that a consumer is willing to pay for a good or service
Which direction is the slope for demand
downward - reflecting the the diminishing benefits - diminishing willingness to pay for each unit consumed
The price that a producer is willing to sell a good or service must be ____ than or equal to their cost of production
greater than
What does the upward slope represent?
The increasing costs of producing the next marginal unit.
Supply is the area under the _____ function, which represents the ______ associated with that level of production
Marginal cost function represents the total cost associated with that level of production
What is efficiency in an economic model?
Where demand=supply (marginal benefits = marginal costs)
What are external costs and benefits
Costs and benefits not captured by the market price
What is an externality? - provide an example from class
When a decision causes or benefits others where the decision-maker does not bear all the costs or reap all the gains from their action
- Pulp and paper mill and costing the recreation facility downstream
Marginal Social Cost = ?
Marginal private cost + external costs
Marginal Social Benefit = ?
Marginal Private Benefit + external benefit
What is defined as a market failure
when the level of production determined by the market is not socially efficient
- the market fails to maximize social net benefits
