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Principles of Natural Resource Econ Final
Terms on basic economics and natural resource economics, regarding fishery and water economics, optimal rotation, etc.
40
Economics
Undergraduate 2
03/10/2012

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Term
Externality
Definition
The negative or positive effect of a person's or institution's actions, who doesn't experience the full benefits or costs themselves.
Term
Pareto Optimality
Definition
Also known as pareto efficient, is an exchange outcome which makes one party better off without making others worse off. If markets are maxmizing efficiency, this means the market is allocating goods in such a way so that the equilibrium is pareto efficient and total social surplus is delivered.
Term
Positive Externality Example
Definition
A beekeeper takes care of bees and harvests their honey. A side effect of this activity is the pollination of surrounding crops thanks to the bees.
Term
Negative Externality Example
Definition
Pollution from factories damages crops, buildings, public health. Harvesting by a fish company depletes stock available to other companies (overfishing).
Term
Type of Good Lighthouses Provide
Definition
Unless some type of port fee is charged to boaters, a lighthouse is a public good because there is no cost to an additional user of the good and people aren't required to pay to utilize it. The market isn't expected to deliver the efficient number of lighthouses because it is difficult to maximize efficiency on ports less traveled than others. Although they are public goods, lighthouses are often privately owned, and if they were provided with some sort of incentive for building, they may put lighthouses in locations in which they would be used most.
Term
User Costs
Definition
Shows the present value of future net benefit that is lost due to the use of the resource at present, or the opportunity cost of extracting an additional unit of resource today. Arises due to the scarcity of the exhaustible resource and as such it is often called scarcity rent.
Term
Economic Theories for Solution to Sustainability Problem
Definition

1.) Nonrenewable resources are used while the economy transitions into a backstop resource or technology to be used instead.

2.) The rents earned from the use of nonrenewable resources be invested into assets that will substitute new productivity to cover the reductions in nonrenewable inputs.

Term
Use Values
Definition

Derived from actively engaging with the resource (waterskiing, fishing).

Consumptive and nonconsumptive.

Term
Why is it difficult for firms experiencing decling marginal costs to stay in business?
Definition
Total costs will exceed total revenue when marginal cost and marginal benefits are simultaneously declining.
Term
Public Visits Benefits Schedule
Definition

Total costs=total benefits is the equlibrium number of visits.

MB=MC is the efficent number of visits.

Term
Examples of externalities caused by extraction of renewable/nonrenewable resources
Definition
Extracting nonrenewable resources can be the overfishing of a certain population in a river. This can cause externalities of decreaesed nonconsumptive values for the people living by the river, and also a possible externality of making the species threatened. This can be remedied by placing limits or regulations on the amount of fish that can be caught.
Term
Criticisms of Contingent Valuation Method
Definition

Questions of the survey are completely hypothetical and may not represent an actual situation that has or will occur.

People may have a poor understanding of the issue and there is a low response rate because only the people who care about it respond.

Term
Shadow Price
Definition

The marginal value of the species, or the value of one more organism to a species.

Reflective of the marginal benefits and/or damages incurred by the species.

Term
Public Good
Definition

Non-excludable and non-rivalrous.

(No one can be excluded from using the good and one person's use doesn't deplete another's opportunity to use it.)

Term
Coase Theorem
Definition

Says allocate property rights and people will negotiate until efficient level of production/consumption is reached.

With well-defined property rights and costless bargaining, negotiations between parties will bring about the socially efficient level.

Term
Present Value
Definition
Present value refers to the worth of something to a person today after it has been discounted for the future.
Term
Nonuse values
Definition

derived from a resource without actually experiencing it.

Existence, option, bequest

Term
Consumptive Values
Definition

extractive (fishing)

rivalrous good

Term
Nonconsumptive Values
Definition
do not require resource to be diminished, akin to public goods (hiking)
Term
Existence Value
Definition
you enjoy the knowledge that the resource exists
Term
Option Value
Definition
you want the resource to exist so that you have the possibility of experiencing/getting use value from it in the future.
Term
Bequest Value
Definition
you want the resource to exist so future generations can enjoy it
Term
Valuation Methods
Definition

Revealed Preference

Direct Price Analysis

Indirect Price Analysis

Hedonic Method

Travel Cost Method

Term
Revealed Preference
Definition
preferences of consumers can be revealed by their purchasing habits
Term
Direct Price Analysis
Definition
use observed market prices to value a resource (streamfishing)
Term
Indirect Price Analysis
Definition

use prices of complimentary goods to "back out" use value of resource

Two types: hedonic method and travel cost method

Term
Hedonic Method
Definition
estimates economic values for ecosystem or environmental services that directly affect market prices. Most commonly applied to variations in housing prices that reflect value of local environmental attributes.
Term
Travel Cost Method
Definition
akin to price of consuming good/getting the use value from the resource
Term
Contingent Valuation Method
Definition
ask people how much they value something
Term
Deadweight Loss
Definition
the amount of social surplus lost due to forgone transactions or trades
Term
Crowding out
Definition

Free-riding.

private provision is inefficient because someone's private provision "crowds out" other private provision

People's incentives to contribute decline as provision is increased

Term
Conservation
Definition

presupposes use

the protection and management of resources for use of people

Term
Preservation
Definition
there should be no development of the resource (land untouched by people)
Term
Cost-Benefit Analysis
Definition
comparison of costs/benefits of public projects to determine whether they should be (or should have been) undertaken.
Term
Backstop Technology
Definition
technologies available that can utilize other resources to do similar jobs
Term
Maximum Sustainable Yield
Definition
max amount one can yield without depleting the resource
Term
Gordon Model (bullet points)
Definition
  • the farther the TC line is from the top of the curve, more efficient it is to regulate. Greater room/chance for extracting rents to cover costs
  • regulate with tax (less monitoring required)
  • as effort increases, stock decreases (overfishing)
  • no rent generated in open access situation
  • not efficient to increase the carrying capacity
  • efficient: maximize rents, which is distance between TR and TC
Term
Open Access
Definition
  • anyone can come in and start fishing
  • your access to resource does not stop another's access (not excludable)
  • staking out a fish does deplete resource (rivalrous)
  • if we wanted to regulate, use tax as opposed to command and control to create revenue (or rents), where command and control increases costs all around
Term
Externalities of Open Access
Definition
  • too many entrants
  • each entrant will overfish: ignore renewable nature of resource
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