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Terms in this set (148)
Why resources are used as they are and what specific steps can be undertaken to use them at a rate that is socially beneficial to all
What is the longest-running issue in natural resource economics?
Will future supplies of these resources be sufficient to support economic needs of our children?
Or will the natural resource shortages become so severe that they threaten future?
The largest part of the energy system of the western world is based on ___________________
non renewable resources: petroleum, coal, and natural gas
What causes humans to conserve resources in the modern world?
Price of the resource
The main focus of resource economists has been to examine the _________ of the resources
Rising prices signal ____________ whereas steady or declining prices signal _____________
absence of scarcity
Have prices of natural resources over the long term increased or decreased? Why is that?
They have decreased despite population growth
Massive technological change in extraction, transportation, and refining
Natural Resource Substitution
New technological advances
Socially Optimal Natural Resource Utilization Rates
Studying whether rates are the best ones from the standpoint of society
How do you determine what the optimal use rates of a resource are?
Ellie Sits Inside Farts
The maximum of net benefits accrued by members of society
Total benefits-Total Cost
Maintaining some valued index of human or ecosystem welfare
Identifying actions that impact people in ways that are regarded as equitable
An example of socially optimal natural resource utilization
An annual catch quota for fish
When the actual use rates diverge from what we determined as "best"
Example of a private market causing a natural resource mismanagement
Automobile makers from 1975-2006. When gas prices increased in 1970's they made cars with higher mileage and less horsepower now the trend has been the opposite. Why? Changing energy prices
How people use and abuse natural resources as a result of the economic institutions that guide our decisions and behavior-basically gas is cheap I have the right to buy a car that uses lots of gas
Open access system of fish
First come first serve you get all the fish you can
Private Property Rights of fish
Only have the rights to a certain amount
Resource misuse can occur from ______________
Subsidies and an example
a sum of money granted by the government or a public body to assist an industry or business so that the price of a commodity or service may remain low or competitive
Federal government funded nuclear energy with tax credits, loan guarantees, coast compensation BUT this causes nuclear to be artificially cheap which leads to more consumption of energy
Gross Domestic Product (GDP)
The total value of "final" goods and services produced in the economy-goods and services supplied to households and consumers
What is a problem with the GDP?
Doesn't allow for natural resource depletion-looks at depreciation of human produced goods (buildings equipment etc.) but not at natural resources
Natural Resource Accounting
Brought about by a need to study how a resource being used now can deprecate for future generations over time
Example of natural resource accounting
The measurement of flood control values produced by many forested areas or the wildlife preservation values produced by public parks or other wildlife refuge areas
Natural Resource in terms of its non-extractive services
Scenic values, support for outdoor recreation, biodiversity, preservation of meaningful heritage
A new discipline that tries to combine the principles of economics and ecology to produce powerful ways of examining the roles of natural resources and the impacts of economic activity on natural resource systems
Development Rights Purchase
Public authorities purchase only the right to develop from farmers leaving them with the remaining rights on their land and the freedom to farm as they wish
Difference between what a resource is worth in the market and what is costs to extract, transport, and process it
A means by which a group of people provide themselves with adequate, and perhaps improving, levels of material and social welfare
All individuals play two roles in an economy:
Producers and consumers
Quantitative variables of the system
Stock Variables (acres of forest, tons of marine biomass) and flow variables (energy striking the surface of earth, wind speed)
Qualitative variables of the system
Features of the resources (ppm of air pollution, salinity, temperature of water)
nature provided inputs with the idea that their quantity and quality can be affected by human action
What nature provides to us and takes from us
How does natural resource economics differ from environmental economics?
Natural resource economics is the study of the flow of natural resource products and services INTO the economy
Environmental economics is the study of the flow of materials and energy residuals BACK into the natural world
The primary concept in natural resource management is __________________
Today we may say that conservation is the idea of using natural resources at a rate that is __________________________
Use Value and example
attributes of nature are being utilized in some sense
example: when water is used to irrigate crops which are then harvested and consumed
scenic use value-white water rafting
Values expressed by human beings simply for the existence of natural resource
Becuase it exists I could use it one day
The desire to leave a healthy ecosystem to future generations
Extractive Value and example
Resource subject to some process of physical removal from their natural surrounding and perhaps physical transformation during use
Example: Timber in forest
Nonextractive Value and example
Valuable service without being removed from natural setting
Example: backpacking in a forest
Fill in the table
Minerals-fuel (coal) geological services (weathering)
Fisheries-food whale watching
If this card doesnt work look at page 29
Mathematical equation for the general resource use
S1-amount of resource available in period 1
S0-amount of resource available in period 0
Q0-Amount of resource used in period 0
(ΔS)-replenishment to the resource in period0
If ΔS is 0 what type of resource is it? If ΔS is >0 what type of resource is it?
The distinction between a renewable resource and a non-renewable resource is partly _________ and _________
physical and economic
If we can't extract more with current technology it will be considered nonrenewable
Certain non-renewable resources may be __________
Write a basic expression to show a recyclable resource
α-percentage of the first years use that is recycled
Usage of a natural resource is reversible if
Willingness to Pay
The value a person places on a good or service is what they are willing to pay to get that good or service
Diminishing Willingness to Pay
As the number of units consumed increases, the willingness to pay for additional units of that good goes down
Marginal Willingness to Pay
Describes the additional willingness to pay for one more unit
Total Willingness to Pay
The total amount a person would be willing to pay to attain that consumption level rather than go without the good entirely
Aggregate Marginal Willingness to Pay Curve
The summation of the marginal willingness to pay curves of all the individuals in the group of interest
A good which can be consumed in separate and possibly different amounts by each individual in a group
A good that when made available to one person, automatically becomes available to others as well
ex. radio broadcast
available to everyone is essentially the same quantity-the amount one persons listens to does not diminish the amount available to potential listeners
Benefits are measured by __________________
total willingness to pay
Total willingness to pay on a graph is measured by ___________-
area under the demand curve
Demand curves are often critically effected by people ________________ not just their willingness to pay
ability to pay
Benefits accruing to everyone without inclusion
Ex. Benefits of introducing wolves back in Yellowstone
Applying a discount factor to future values in order to convert them into present values
Equation of Discounting
The costs of inputs used to produce a particular output are the values those inputs would have produced had they been devoted instead to their next best production opportunity
Example of opportunity cost
If a spouse of a fisherman is doing the accounting but isn't getting paid the opportunity cost would be what the spouse could have earned if he had worked in his next best alternative
Environmental Cost Example
Type of opportunity cost
Production of paper causes pollution-pollution is part of the opportunity cost even though the firm doesn't show it
The change in total cost resulting from a one-unit change in the quantity of the output
All the costs to society of a particular course of action
How do you find the total cost with a marginal cost curve graphically?
Always the area underneath!
What impact does technical change have on production? What does this look like graphically?
Technical change normally makes production less costly
Graphically this shifts the marginal cost curve downward
Static Efficiency and example
A state of affairs that is efficient in the static sense is efficient strictly form the perspective of a single time period, in particular the present one
Example: A timber harvester cuts down a number of trees this year and ships them to market
Dynamic Efficiency and example
A situation that is efficient when not only the present year is taken into account but all future years as well
Example: Cutting down all the trees today means no trees next year
Marginal Social Costs
The marginal costs to all of society to produce this good or service
Marginal Social Benefits
The marginal willingness to pay of all members of society for this good or service
Net Benefits to Society
Total benefits of the thing that is produced minus the value of the resources used up to produce it
How would you find the total benefits of a quantity of output on a graph?
The area under the social marginal willingness to pay curve
How would you find the total costs of a quantity of output on the graph?
Area under the marginal social cost curve
Decisions that increase the net benefits of using a natural resource in the present period often have the effect of decreasing net benefits from the resource in the future
anything that affects the future net benefit
What would the user cost be if the changes today had no future consequences?
Zero and we would have a static situation
How do you determine if the situation is static or dynamic?
Static-the decision today has no impact on future
Dynamic-decision today effects the future
In dynamic efficiency it is required that today's output (say amount of water taken out of aquifer) be set so that the marginal willingness to pay today is equal to the sum of today's ______________ and __________
marginal cost and user cost
marginal current benefits
What does MCB show on a graph? Use corn
Society's value of this resource today
So how much does society value this corn today
What does MCC show on a graph? Use corn
social cost (all of the cost to society) of harvesting corn this year
In situ price
The price of a natural resource as situated in the natural world
For example a stumpage price for wood is how much the stump sells for not including the price to harvest
In natural resource economics the in situ price of a natural resource is commonly called its ____________________
Total Rent=(resource rent of 1)(quantity at that rent price)
What does it look like graphically when markets are socially efficient?
When the market demand curve matches the marginal social benefits and the market supply curve matches the marginal social cost
For a true market to be socially efficient they must be ____________
The difference between private costs and social costs
The costs incurred by people who are not party to the decisions that give rise to them
What would the external cost of logging a forest be?
The cost to the people who place value on the ecological characteristics of the forest
A resource that is open to unrestricted use by anyone who might wish to utilize it
Example: Ocean fisheries
Externalities that the users of the resource inflict on on each other in the form of diminished resources-example as more people come to the beach it becomes less desirable for me to want to go to the beach
Aggregate Willingness to Pay minus Total Cost
Gives the resource rent
Maximum Natural Resource Rent
The efficient use rate
Maximum difference between social benefits and social costs
2 Reasons why Natural Resource Mismanagement may occur
1. Private markets do not function efficiently
2. Bad public policies and public regulations
Use by removing from the environment
Non extractive use
Use without removal
4 Non-Use Values
1. Existence Value
2. Option Value
3. Bequest Value
4. Stewardship Value
Math equation to calculate the amount of resource available in the future for a renewable resource
(Amount of resource available now)-(Amount of resource used now)+(Increment to the resource in period 0)
𝑆1 = 𝑆0 − 𝑄0 + ∆S
Math equation to calculate the amount of resource available in the future for a nonrenewable resource
𝑆1 = 𝑆0 − 𝑄0
(Amount of resource available now)-(Amount of resource used now)
Sum up the article on Making Policy in an Uncertain World by Severin
Goes to Science March-you have to believe in science always not just when it supports your claims-one research study never makes a fact-every decision to take action is made under uncertainty
Why does Severin say that markets won't fix climate change?
There are no markets for pollution externality
Extra Reading: Ecuador Yasuni National Park Drilling
Plan on drilling to get oil because they need the money
Countries and the UN donated money 300million but its a fraction of the billions theyll get for drilling
Nonextractive uses of a forest
Recreation, Biodiversity, Flood control, Carbon Sequestration
Marginal Willingness to Pay
The amount of money a person is willing and able to pay to obtain an additional unit of a good
Total Willingness to Pay
The amount of money a person is willing and able to pay for some number of units of a good
How to find the total willingness to pay graphically?
Area under the marginal willingness to pay curve
How do you find the marginal willingness to pay graphically?
The height of the MWTP curve at a certain number of units
Diminishing marginal willingness to pay
The more a person has already purchased and consumed of a good the less she is willing to pay for the next unit
Goods for which consumption is not shared
How do you find aggregate willingness to pay for a private good graphically?
Horizontal summation of individual demand curves
Example of a pure public good (give 3)
Intermediate between a private and a pure public good example
Public spaces like a road because these are subject to a crowding effect
Pure Public Good Define
Good provided to one person that is available to others-one persons enjoyment of pure public good doesn't diminish by others consuming the good
How do you find aggregate marginal willingness to pay for a public good?
Vertical summation of individual demand curves
Whats the difference between aggregate marginal willingness to pay for a public good versus aggregate marginal willingness to pay for a private good graphically?
Private-horizontal summation of individual demand curves
Public-vertical summation of individual demand curves
So AWTP for a public good?
Public-stack the graphs vertically
Private-stack those graphs horizontally
Value of something in its next most valuable use
Example: Cost of me being here in class includes the benefit I would have received from doing something else
The difference between a firms private cost of production and the social cost of production
Example: A firm dumps waste into river. Private cost of this may be free to the firm but the social cost is not-people are getting sick
When does a negative externality exist?
Economic activity that imposes negative effect on an unrelated third party
air pollution from burning fossil fuels
When technology comes about the ___________ decreases
We say that supply of some good or service is perfectly competitive ___________________
if no firm can affect the price of output
Aggregate supply is what graphically?
The horizontal summation of individual firm supply curves
An outcome is efficient in the static sense if it is efficient for ____________
a single time period
A sequence of outcomes is dynamically efficient if it is efficient ___________
over a specified number of time periods
Example of it being beneficial today and being detrimental today
marginal user cost
Beneficial: Thinning a forest today will increase marketable timber in the future
Detrimental: Using a resource today means in the future it won't be around
the value of a resource over and above what it costs to extract, process, and sell
What is the in situ price of a resource?
Its value in nature-before extraction
2 kinds of capital that human welfare is based on
-Natural Resource capital
-Built (man-made) capital
What does sustainability imply about the value of capital stock?
The value of total capital stock should not decline over time
What does sustainability assume about capital?
Assumes that natural resource capital and built capital are perfect substitutes in the production of human welfare
Allow efficient depletion of natural resources and invest the resulting natural resource rent in other capital to maintain the value of the total capital stock
What is the flaw in weak sustainability?
Says that we can replace a natural resource with a man made capital
We maintain the value of the remaining stock of natural resource capital-doesn't matter what natural resource but alllows for substitution among different forms of capital
Will a market produce an efficient outcome if the production of the good involves an external cost?
MSC (Marginal social costs)=
MPC + MEC
Marginal private cost plus the marginal external cost
Example of an external benefit
I own a farm near a highway-they want to convert it to condos but people prefer to look at my farm rather than condos
_____________ are present whenever public goods are involved
When looking at a chart (like the beach example) when is the efficient number of visitors?
When maximize the aggregate net benefits
4 Criteria for judging public policy in this class
2 Types of Public Policies
1. Incentive Policies
2. More direct government control
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