ENVIRONMENTAL ECONOMICS - LECTURE4

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  • Created on: 29-09-18 21:09
WHAT IS WELFARE ECONOMICS?
THE STUDY OF HOW THE ALLOCATUON OF RESOURCES AFFECTS ECONOMIC WELL BEING
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WHAT TRANSITION DOES WELFARE ECONOMICS MAKE?
TRANISITIONS FROM POSITIVE TO NORMATIVE ANALYSIS
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WHAT IS CONSUMER SURPLUS?
THE TWTP - TOTAL EXPENDITURE
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WHAT IS PRODUCER SURPLUS?
PS = TOTAL REVENUE - VARIABLE COSTS
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WHAT DOES PRODUCER SURPLUS SHOW?
MEASURE OF PRODUCERS WELL BEING
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WHAT IS THE TOTAL SURPLUS EQN?
TS = CS + PS
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WHAT IS ECONOMIC EFFICIENCY?
PROPERTY OF A RESOURCE ALLOCATION THAT MAXIMISES THE TS RECEIVED BY ALL MEMBERS OF SOCIETY. IT IS THE PRIMARY NORMATIVE CRITERIA IN ECONOMICS.
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what maximises total surplus?
the equillibrium price and quantity maimise the total surplus
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what happens if Q is greater than or lower than Q*?
there is a dead weight loss and total surplus is lower
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what must this make true then?
it must be true that Q* and P* aximise total surplus
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what does the 1st fundamental welfare theorm tells us?
it tells us about econommic efficeincy of competitive equililbrium in all markets
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what is the theorm?
the theorm is that any set of prices and quantities that a competitive equillibrium leass to a Pareto optimal allocation of resources
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what does the 1st fundamental theorm assume?
it assumes that: there are no externalities or public goods. it assumes that the markets are competitive and local nonsatiation (consumers can always find goods that they prefer more)
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what is an externality?
An uncmpensated impact of ones actions on the well being of another.
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what distinction is needed?
the distinction between private and social perspective is key
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what is a negative externality?
what the impact has anegative effect on someone/thing e.g. pollution, so the efficient quantity < equillibriu quantity
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what is a positive externality?
when there is a positive impact on someone/thing e.g. bees and farmer fields. so the efficent quantity > equillibrium quantity.
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what is the marginal social cost eqn?
MSC = MPC +/- MEC
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what happens if a production externaltiy is +ve?
MSC < MPC
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what happens if a production externaltiy is -ve?
MSC > MPC
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what happens if a consumption externaltiy is +ve?
MSB > MPB
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what happens if a consumption externaltiy is -ve?
MSB < MPB
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WHAT ARE THE TWO CHARACTRISTICS OF A GOOD?
RIVAL AND EXCLUDABLE (NON)
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RIVAL?
ONE PERSONS USE OF A GOOD DIMINISHES OTHER PEOPLES USE OF THE GOOD
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EXCLUDABLE?
IT IS POSSIBLE TO PREVENT SOMEONE ELSE FROM USING THE GOOD
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WHAT IS A PRIVATE GOOD?
PRIVATE GOODS ARE RIVAL AND EXCLUDABLE, SUCH AS ITES OF CLOTHES, FOOD OR WATER BOTTLES.
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WHAT IS A CLUB GOOD?
CLUB GOODS ARE NON RIVAL BUT THEY ARE EXCLUDABLE E.G. FIRE PROTECTION, A COUNTRY CLUB OR EVEN NETFLI
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WHAT IS A COMMON GOOD OR OPEN POOL RESOURCE?
OPEN POOLS ARE NON ECLUDABLE BUT ARE RIVAL E.G. FISHERIES, GRAZING LANDS OR DORM COMMON ROOMS.
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WHAT ARE PUBLIC GOODS?
PUBLIC GOODS ARE NON RIVAL AND NON EXCLUDABLE E.G. PUBLIC RADIO, NATIONAL DEFENSE
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WHAT IS THE FREE RIDER PROBLEM?
THE FREE RIDER PROBLEMM IS IN RELATION TO PUBLIC GOODS, IT EANS THAT PEOPLE HAVE NO INCENTIVE TO PAY FOR OR TAKE CARE OF GOODS AS THEY CAN ENHOY THE BENEFITS BY FREE RIDING ON THE PAYMENTS OF OTHERS.
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WHY DO PUBLIC GOOD LEAD TO MARKET FAILURE?
THE LEVEL OF PROVISION INEFFICIENCY IS LOW AND INTUITION PROVISON OF A PUBLIC GOOD
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HOW CAN GOVERNMENT INTERVENTION PLA A ROLE?
GOVERNMENTS CAN PROVIDE PUBLIC GOODS TO CORRECT THE MARKET FAILURE DUE TO THE FREE RIDER PROBLEM, THIS CAN BE DONE THROUGH THE USE OF TAX REENUES TO PROVIDE A PUBLIC OF PUBLIC GOODS E.G. PUBLIC TRANSPORT LEVEL OF GOVERNMENT PROVISION>FREE MARKET PROV
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WHAT IS THE TRAGEDY OF THE COMMONS?
IT IS A SIDE EFFECT OF OPEN/COMMON POOL RESOURCES. IT MEANS THAT INDIVIDUALS HAVE LESS INCENTITVES TO TAKE CARE OF THINGS THAT ARE COMMONLY OWNED
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WHY IS THIS SUSCEPTIBLE TO MARKET FAILURE?
THERE IS INEFFICIENTLY HIGH LEVELS OF EXPLOITATION IS OPEN POOLS AND INTUITION GENERATES A NEGATIIVE EXTERNALITY.
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WHAT IS THE PARETO EFFICIENCY?
A SITUATION WHERE NO ONE CAN BE MDDE BETTER OFF WITHOUT MAKING SOMEONE ELSE WORSE OFF
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WHAT IS THE PARETO IMPROVEMENT?
A CHANGE THAT MAKES AT LEAST ONE INDIVIDUAL BETTER OFF WITHOUT MAKING ANYONE ELSE WORSE OFF
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WHAT IS THE POTENTIAL PARETO IMPROVEMENT?
CHANGE THAT MAKES SOME PEOPLE BETTER OFF BY ENOUGH THAT IS WOULD COMPENSATE ANY LOSSES, SO THAT NO ONE ELSE IS WORSE OFF.
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