5 Definitions for 15 marks
5 questions for 10 marks
Given a diagram, identify:
o Consumer surplus, producer surplus.
o Deadweight loss
o Chapter 4 Slide 16
o Second question in assignment two
o NSS*, etc.
1. What are conditions of property rights? How are they related to
externality and market failure?
a. Property rights:
i. Exclusivity: all benefits and costs to the owner
ii. Transferability: rights are transferable
iii. Enforceability: rights can not be encroached
b. Externality and Property rights
i. IF condition #1, exclusivity is violated, then we have external
effect or externality
c. Market failure
2. What is sustainability? Explain weak and strong sustainability criterion.
i. Sustainable economy is one in which investment in social
capital allows the economy to grow so that people are at least
as well off in the future as they are in the present, while
ensuring the health of ecological systems
b. Weak sustainability
i. Assumes natural and man-made capital are sustainable
1. Aggregate of capital stocks
c. Strong sustainability
i. Various forms of capital are not equally sustainable 1. Protects physical stock of crucial natural capital and
constant real values of natural and man-made and
3. What is PPF ?
a. PPF illustrates economic outputs as a function of
b. PPF also shows what levels of each are attainable. By
giving up one, you are gaining more of another. It also
illustrates marginal diminishing tradeoff.
4. What is a community indifference curve?
a. CIC is community indifference curve. Shows
combinations of goods and environmental quality that
show the same level of well being for society.
b. Where CIC is tangent to PPF is where maximum well-
being is attained.
5. Environmental Kunzets Curve (EKC)
a. Per capita income vs environmental quality
i. Single indicator sof environmental
quality, not a measure of the
combined effects of many pollutants
on ecosystem health.
1. What is the role of natural capital in envrio
a. Natural capital
b. Study of nature in its role as a provider of raw materials for
production and consumption
c. Natural capital plays role as input into environmental economics
2. What are the implications of a circular flow relationship for economic
a. Implies tat our development choices must be aligned with limitations
of the environment. Development policies should focus on:
i. Reducing outputs
ii. Reducing waste
iii. Recycling increases
1. Why a demand curve also be called mWTP and MB?
a. Price of a demand curve indicates the price a consumer is willing to
b. Each point on the demand curve reflects monetary value of benefits of
consumption from each additional unit.
2. How to derive aggregate demand curve equation and how to draw it.
a. Inverse of the demand curve. When P=0= x int. When Q=0= y int. b. Aggregate is the horizontal summation of individual curves.
c. Kink occurs when vertical intercepts are different.
3. What is consumer surplus and how to calculate it?
a. The amount of benefits a consumer receives without paying.
b. Area under the demand curve, above price and up to quantity.
4. Why is supply curve also called MC?
a. Supply curve is also the cost of producing.
b. Profit maximizing occurs when MC=P
5. How to derive aggregate supply curve equation and how to draw it.
a. Inverse supply curve. Whe