Week 1- Intro Flashcards
Classic Definition of Economics
study of how scarce resource are allocated among competing uses to best satisfy the wants of people
People/Gov make tradeoffs…..
between resources that don’t conventionally have monetary value
e. g reducing C emissions: cost to economy vs. ecosystem services of entire planet
e. g driver safety: expenditure on highways
Total Economic Value
Use Value
- Option Value
- Direct use value
- Extractive values
- Non-extrative values - Indirect use values
Non-use values
- Bequest Value
- Existence Value
Non-extractive values e.g
tourism
Option Value e.g
Benefit that arises from conservation of biodiversity, giving the option to utilise those resources in the future.
Indirect Use Values e.g
Stringybark forest: Carbon sequestration potential
we don’t get a direct personal benefit, indirectly benefit though carbon being sequestered
Economics analysis vs financial analysis
Economic analysis aims to account for societal benefit and costs of project
Tradeoffs between…
efficiency & equity
efficiency
Maximise outputs for given inputs
difficult to measure because doesn’t account for all costs & benefits
equity
people getting what they need
(subjective due to differing views)
-economics has little to say about equity
Positive statements:
Describing economic behaviour without judgement
e.g timber harvesting restrictions raise the market price
Normative statements:
Arguments of equity
e.g Aus gov should reintroduce carbon tax
Natural resource & Environmental economics
Natural resource Econ —> Economy —> environmental econ
Natural resource economics
flow of natural resources into economy (extractive and non-extractive)
Environmental economics
flow of residuals back into natural world
Natural resources types
- Renewable: Biological, flow or fund resources
2. Non-renewable
Biological resource
animals, plants. Renewable if harvested wisely
potentially degrading resource
Flow resource
wind, sun, water - unlimited consumption
Fund resource
storage e.g dams/ solar battery
Market Price
reflects relative scarcity
Exclusive & Rivalrous
Private property
Non-exclusive & non-rivalrous
Pure Public Good (e.g air)
Non-rivalrous & exclusive
Crown
Rivalrous & non-exclusive
Open access (e.g open access fisheries)
John Rawls - A Theory of Justice (1971)
political philosophy:
Put all people from all generations behind a veil of Ignorance…. would decide that all natural and human-made resources are shared exactly equally
Production Possibility Frontiers (description and curve)
A great way of describing production vs environment tradeoffs to be sustainable:
- A certain amount of market goods consumption determines the environmental quality.
- Current generations may be able to consume a certain amount of goods for a certain level of environmental quality
- If future generations would like the same level of environmental quality, production will have to be lowered substantially.
(e. g GBR)
Opportunity cost
cost of something given up: best alternative foregone
e.g waking up to go to lecture sacrifices sleeping
Marginal Benefit
additional benefit that arises from a small change in an existing plan (e.g if you are in the front of a squad to capture a wanted man, you have the marginal benefit of capturing him first and getting bounty)
Marginal Cost
additional cost that arises from a small change in an existing plan (e.g if you are in the front of a squad to capture a wanted man, you have the marginal cost of getting killed)
Equi-marginal principle
‘scarce resources should be allocated to a particular use until the marginal benefit (MB) of allocating another unit to that use equals the marginal benefit that could be gained by allocating the additional unit of that resource to the next best alternative use’ (e.g koala conservation vs. fuel reduction treatments….. the most efficient spending is when MB of each use is the same [equi-marginal] when looking at table)
The opportunity cost of clearing a forest to expand the area of farmland includes
- foregone timber revenues
- loss of wildlife habitat
air we breathe is an example of
a public good (non-rivalrous and non-exludable)
Draw: Australian banana market when a cyclone damages banana plantations in north queensland
- Due to a loss of crops, the cost of production is distributed over fewer bananas.
The cost of production increases, therefore the supply curve shifts up to the left.
