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Midterm #1 Review.docx

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University of Lethbridge
ECON 3220
Ali Kamar

Midterm Review Section A:  5 Definitions for 15 marks Section B:  Diagram reading  5 questions for 10 marks  Given a diagram, identify: o Consumer surplus, producer surplus. o Deadweight loss Section C:  Externality analysis  20 marks o Chapter 4 Slide 16 Section D:  Math calculations  25 marks o Second question in assignment two o NSS*, etc. Chapter 1: 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. a. Sustainability 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 human capital. 3. What is PPF ? a. PPF illustrates economic outputs as a function of environmental quality. 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. Chapter 2 1. What is the role of natural capital in envrio economics? a. Natural capital i. Renewable ii. Non-renewable 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 development policies? 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 Chapter 3 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 pay. 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
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