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Terms in this set (50)
A market in which the prices understate the value of the full range of services provided by environmental assets is considered missing
If a price does not exist for an environmental asset (such as the existence of sea turtles), this is called a missing market.
Market failures by definition result in a Pareto inefficient allocation. What is a Pareto inefficient allocation?
An allocation that can be reallocated to make someone better off without making anyone worse off.
The difference between a pecuniary and a technological externality is that technological externalities are represented as shifts in the utility or production function, whereas pecuniary externalities only shift the market price (movement along the curve).
Total (or global) benefits are computed by taking the individual benefits and:
The Social cost
The cost faced by all of society including the private consumer/producer.
If the marginal social cost exceeds the marginal private cost, this will result in overproduction (Q optimum < Q market).
Problems with command-and control policies
-Although it creates an incentive to not get caught in violation of the policy, it does not create an incentive to do the right thing.
-Because it violates the equi-marginal principle, it generates economic inefficiency.
-The government will have to spend considerable resources on monitoring behavior and have institutions in place to enforce the law.
-External effect is not through market price, but through its real effect on consumption (utility) or production (profit)
-Shifts in production or utility functions
-External effect is through the market price
-leads to redistribution of income
-gain or loss of one party is exactly offset by the gain or loss of another (cancels out)
-economic development raises rents for college students, which transfers incomes from students to landlords
-economic agents who generate externalities receive reciprocal external effect
-over exploitation of fish stock now reduces both current and future fish available to both that fisher and others
-economic agents who generate externalities are distinct from those who experience them
-individual or firm protects itself from external damage by transferring an environmental risk either to space through location or through time to another generation
-ex dump radioactive waste at sea
-Experience of externality by one economic agent reduces the amount experienced by others
-ex catch of fish by one vessel reduces fish stock and leaves much less fish for other vessels
non depletable externality
-experience of the externality by one agent doesn't affect the amount experienced by agents
-ex existence of whales, air pollution
-outcome that any one country can realize depends on not only its own actions but also on what others can do
Internalizing the Externality
externality becomes part of the price and market system
public policies towards externalities
1 command and control- regualte behavior directly (quotas, licenses)
2. Market based- economic incentives so private decision makers will choose to solve problem on their own (Pigovian Tax, subsidy, property rights)
problems with command and control
-does not create desirable economic incentive
-considerable monitoring and enforcement
Because one cannot control who consumes a non-excludable good, one cannot put a price on a non-excludable good.
bundle of characteristics that conveys certain powers to the owner of that right
-beyond 200 nautical miles
six main characteristics of property rights
All resources or assets are privately or collectively owned and all entitlements must be completely specified and effectively enforced.
all benefits and costs of use of resource accrue to the owner (property right owner has exclusive use and doesn't have to share)
duration of the property right is the length of entitlement
holder of right can divide up the enviromental assets
All property rights should be transferable from one owner to another in voluntary exchange.
Property rights should be secure from involuntary seizure or encroachment by other individuals, firms, or governments.
-stands for economic exclusive zone
-usually include Continental shelf
-is an area beyond and adjacent to territorial sea
The costal state determines the allowable catch of living resources in the EEZ.
A coastal state can chase onto the high seas a foreign ship that has transgressed its laws within its EEZ
The UN fish stocks agreement in 1995 established regional and sub-regional fisheries management organizations.
Catadromous fish stocks spend most of their biological cycle in the high seas but return to fresh water to spawn.
ICCAT: International convention for the conservation of alantic tunas
IOTC: Indian ocean tuna commission
CCSBT: Comission for the conservation of southern bluefin tuna.
True or false: For the fish stock to be unchanged between two periods, the amount of fish caught must exactly equal the growth in the fish stock.
The logistic population growth function exhibits what type of growth?
What must be true in a steady state?
F(X_t) - Y_t = 0
Higher effort necessarily decreases the steady state level of the resource stock
For steady states where the stable level of the resource stock is ____________ than X_MSY, the same steady-state yield can be achieved using a lower level of effort.
If an individual fisher catches y pounds, this increases the total catch (across all fishers) by less than y pounds
when does economic efficiency occur?
when you maximize profit and produce where MR=MC (on graph TC=TR)
when does biological efficiency occur ?
when x greater than or equal to x^MSY. Biological inefficieny results from too much Effort (E>E^MSY)
when do biological and economical inefficient coincide?
any effort above E^MSY is both biological and economical inefficient
open access (graph)
- TR=TC: economically inefficent bc MC doesn't equal MR
- E> E^MSY so bio inefficient
Private property graph
-MR=MC (econ efficient)
-E<E^MSY (bio efficient)
population decline is compensated by increased growth rate
population decline is not compensated by growth rate
case of depensation where critical population level is identified such that population level below this will lead to extinction
positive correlation between population density and population growth
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