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Environmental Econ
Terms and Concepts
69
Economics
Undergraduate 2
03/06/2013

Additional Economics Flashcards

 


 

Cards

Term
Exponential population growth with fixed resources
Definition

1.Thomas Malthus - consumption is increasing, while food production is the same.

2.As demand shifts, quatity demanded goes up, prices go up

3. 3 ways to increase profit - higher price, more production, lower cost

Term
Inter-temporal economics
Definition
the impact of evironment on future generations.
Term
Climate Change
Definition
Smog, sea levels, storms, cancer...
Term
Economics
Definition
the study of allocation of scarse resources.
Term
Arthur Cecil Piguo- Piguoian tax
Definition

If there is a negative externality, set up taxes that covers what the company isnt internalizing. If positive externality, tax the people receiving the spillover and give the companies subsidies. 

A problem: Cant measure utility so you dont know who to tax.

Term
marginal cost
Definition
how much additional cost is needed to produce the next quantity.
Term
Utility
Definition

scarcity value of goods.

signaled by price

 

The total utils one gets. Can't be measured.

Term
negative externality
Definition

a third part is negatively affected by another parties action

pollution,smog.

causes too much production. and no one internalizes the cost to remove pollution. causes dead weight loss.

poorly defined and unenforced property rights

 

solutions: taxes, property rights, government regulation

Term
Government Failures
Definition

Rent-seeking

Regulations- create dead weight loss

Term
Tragedy of Commons
Definition

if government control is there they have incentives to increase benefits.

 

when there is no strict property rights. and open access land, people have used them over excessively, diminishing the source. people look in self-interest. 

 

Commons: Not public goods because they are rivalrous.

Term
What makes up environmental economy
Definition

Natural resources as inputs

Waste as outputs

some recycling

Term
environmental economics
Definition
study of allocation of environmental resources that are scarse.
Term
pareto optimality
Definition
the maximized point for a person's utility. however not necessary optimal for all. ex. slaves, they are still worse off.
Term
Principle agent problem and solutions
Definition

People do things on self interest and have own incentives. The agent does things not in the best interest of the principle. 

 

ex. government having own incentives.

 

Solution - licencing.

Term
dead weight loss
Definition
Benefits of trade that should have happened, but doesn't happen. Lost utility.
Term
Positive externalities
Definition

Producer cant fully INTERNALIZE the full benefits which causes under production to no production.

 

Benefits for a third party.

 

downside - free-riders, which causes low production and dead wieght loss.

 

Term
Nicholas Kaldor & John Hicks- kaldor-hicks efficiency
Definition

improve some people's utility, while hurting others for a net social benefit.

ex. rich give to poor

 

Problem: cant determine individual's utility, it is subjective, 3rd party is evaluating if more efficient to re-distribute money by private choice than force. Govt redstribution.

Term
Elasticity
Definition

Has close subsitutes.

is very sensitive to price changes

EX. butter and margarine - very elastic, because substitutes of each other

Term
incentives matter vs. institution matter
Definition

incentive matter- setting incentives causes a behavior

 

institution matter- structure and rules- what can and cannot do

Term
contingent ranking technique
Definition
ranking the bundles, still with few choices.
Term
Vilfredo Pareto - pareto efficiency
Definition

Exchange where one person is better off and no one is worse off. 

Ex: Slaves can't be better off without hurting the slave owners. 

 

maximizing utility without reducing anyone elses utility, through free exchange and specialization.

 

Problem: 1. Difficult to evaluate utility.

        2. Hard to show efficiency

Term
3 categories of environmental economics
Definition

1. exponential population growth with fixed resources

2. climate change

3. pollution resources

Term
Public Choice Economics
Definition

rational ignorance - cost to get infor to be informed outweighs the benefits

rent-seeking - the money that has no benefit to production, but is used for influence

Term
List Market failures
Definition

1. asynchronous information

2. monopolies - oligopolies

3. externalities - positive and negative

4. principle agent problem

5. public goods

Term
Private good
Definition
property rights, excludable, can transfer rights, rivalrous
Term
Public good and how to solve
Definition

non-excludable (cant stop people from using it), non-rivalrous (doesnt take away from another's use), indivisable, non enforceable.

 

Problem: Free rider. 

 

solution: They use taxes on those who benefit from the publics good, whether you want it or not.

Term
role of substitutes
Definition

good which has a replacement

most things have substitutes, those that dont are taxed

ex. alcohol cigarettes

Term

 

GIS (Geographic Information Systems)

 

Definition
Quantifying Spacial Characteristics.mapping value to a location, econometrics, property values
Term
endowment effect
Definition

once you own something, you want to keep it and not sell it, willingness to accept.

 

Respondents will always over value something they already own. You will get higher answers when using WTA.

 

Term
Asychronous information and how to solve
Definition

one party has more info than another in an exchange, and they use it to their advantage. 

 

Solutions: research, ask other consumers,

education for consumer

regulations - ex. FDA

provide information to consumers - Nutrition label

Term
Monopolies and Oligolopies
Definition

Have patents - no one can manufacture certain good

ex. post office - only mail service.

 

 Oligopolies - cartels, OPEC

Term
Government
Definition
The legitimized monopoly on coercion (force).
Term
Lancaster Rosen Approach
Definition

hedonic pricing, regression will show each factor, housing characteristic, neighborhood, quality to determine price.

 

Problem: omitted variables, too many variables, Multicollinearity(perfect correlation, means nothing), functional form- linear vs. non linear- independent = nonlinear.

Market segmentation right?

Term
positive statement
Definition
it can be tested, includes examples and stats
Term
revealed preferences
Definition

The better option. Based on actions. Assume costs related to the action. They are observable and indirect.

 

Includes: Travel costs and hedonic pricing.

Term
free rider
Definition

The producer doesnt fully INTERNALIZE full benefit which causes under production to no production.

 

 

Term
Ronald Coase - Coase Theorem
Definition

1. Given low to no transaction cost.

2. Allocate property rights.

3. Well defined and enforced property rights.

 

Can solve problems.

The two parties negotiate for the lowest costing option.

Term
Choice Method
Definition
Create Bundles to choose from, bundles are respresentative. less choices to chose from
Term
Market Solutions
Definition

1. free exchange

2. transfer to government for redistribution

3. if market failure - dont get govt help, find solutions based on incentives.

Term
Arbitorage
Definition

buy something at a low price and sell in another area at a higher price because it is the only place to get it.

 factor of monopolies.

Term
Valuing Human Life
Definition

(Population * wtp)/(population * risk) = Value of Human Life


No universal value of life. 

necessary to consider opportunity cost. many companies use this for trade-offs

Term
spillover effect
Definition
someone pays a huge prices while other benefit from it for free. also free-riding.
Term
dynamic efficiency
Definition

maximizing the present value of net socal benefit across time periods.

 

Problems: breaking incentives, cant calculate utility and innovation, dont know that discount rate will really be, dont know if substitutes will be used instead.

Term
Rational Ignorance
Definition

Cost to get info is more expensive than the benefits it gives. 

 

Ex: Voting

Term
flinch method
Definition
find high and low values, through flinching.
Term
Unintended Consequences/Perverse Incentives
Definition

Try to get you to do one thing but cause them to do something else. 

 

Ex: Cash for clunkers. Ended up hurting the environment and gave more money to sales people.

 

Ex: FDA. Drugs take longer to get to market. Deny a drug that might be effective and a lot of rent seeking. People will go in self-interest. 

Term
normative statement
Definition

cant be supported through empirical data

 

Make judgement call. Ex: Which is better?

Term
Marginal Utility
Definition
How much utility you get for every additional unit. It's a downwards sloping which means utility is diminishing.
Term
static efficiency
Definition
a social gain, prices help find effiecient level of consumption
Term
How to evaluate effiecency?
Definition
find the proper amount of externalities, whats the proper use. social-trade offs because not able to do perfectly.
Term
Free market
Definition

1. well define and enforced property right.

2. rational individuals pursuing their self-interest

3. low transaction - stable common medium of exchange, symmertical and complete info, low search cost

Term
Stock Pollution
Definition

Accumulates non degradable.

 

Ex: Plastics and heavy metals.

Term
Cost benefit anaylsis
Definition

enforced laws, property right, free exchange.

 

stated vs. revealed preferences

Term
Free Market Solutions
Definition

Coasian Solution.

 

Pollution credits.

 

Setting standards- Encourages innovation.

Term
Stated Preferences
Definition

What people say to give it a value. How much people are WTP. 

 

Problem: It can be overstated because won't have to actually pay. Hypothetical.

Term
Stationary source of pollution
Definition

Im-mobile sources of pollution.

 

Ex: Factories and plants. 

Term
Hedonic pricing
Definition

based on housing, take difference in housing price to determine the price of a certain location or park.

uses property and wage valuations as well as human life.

 

Problem: cant see all factors to have a good comparison

Term
travel costs
Definition

how much people will drive to come to a certain location

costs include - mileage, time(labor vs. leisure), opportunity cost-rating characteristic

 

Problem: might be there for other destinations so cant account for travel.

Term
Fund Pollution
Definition
Degradeable and absorbable.
Term
present value
Definition
FV/(1+r)n
Term
Pecuniary Externality
Definition
  • Wal-mart opens and four businesses shut down.

 

  • There is a net social gain. 

 

Increases consumer and producer surplus.

 

Not a market failure.

Term
future value
Definition
PV * (1+r)n
Term
Marshallian efficiency
Definition
free trade guarantee an improvement in efficiency. Parties know their own utility to know when to trade. Problem: market failure or government failure.
Term
Define costs of a cost benefit analysis
Definition
include: resource, regulatory, social, and opportunity costs.
Term

Contingent Valuation

 

Challenges?

Definition

 

Survey to determine Willingness To Pay (WTP) or Willingness to Accept (WTA)


Challenges: hypothetical question, strategic bias, information bias, starting point bias, endowment effect.

 

Term
Ways to remove challenges of contingent valuation
Definition
balance of population, provide useful info, start at hight and lower ranges until the person is willing to pay
Term
Production Function
Definition

indirect revealed preference.

Using the environment as an input to the production function. Can be a cost to production or as a revenue-­‐increasing agent.is it worth spending for improvement?


Problem: Coming up with the production function, modified behavior, consider opportunity costs

 

 

Term
Diffused Source of Pollution
Definition

Pollution caused by mobile things (cars). 

 

Term
Government Solutions
Definition

Taxes

 

Regulations

 

Subsidies

 

Bans

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