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Final

FARE2700 Final: FARE 2700- FINAL EXAM Notes

19 Pages
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Department
Food, Agricultural and Resource Economics
Course Code
FARE 2700
Professor
lipka

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Description
12152015 Unit 2: Positive economics: what is, what was or what will be. Facts Normative economics: ought to be Value judgments (guidance) Static efficiency: an allocation of resources where economic surplus derived from those resources is maximized by that allocation (time is not an important factor) ex, water or solar energy where next years flow is independent of this years choices Economic surplus: the sum of consumers surplus and producers surplus Consumer surplus: is the value that consumers receive from an allocation minus what it costs them to obtain it (area under the demand) Producer surplus: (area over the supply curve) efficient outcomes= optimal outcomes Optimal allocation efficient allocation: area where MC and MB intersect First Equimarginal Principle (the Efficiency Equimarginal Principle): Social net benefits are maximized when the social marginal benefits from an allocation equal the social marginal costs. Social marginal benefit: is the increase in social benefits received from supplying one more unit of the good or service Social marginal cost: is the increase in cost incurred form supplying that additional unit of the good or service Pareto optimality: allocations are said to be Pareto optimal if no other feasible allocation could benefit at least one person without any deleterious effects on some other person efficient allocations= pareto optimal impossible for gainers to compensate the losers sufficiently, the gain of the gainers would be smaller than the losses to the losers suboptimal allocations: (allocations that do not satisfy the Pareto optimality definition) can be rearranged so that some people can gain net benefits without the rearrangement causing anyone else to lose net benefits gainers could use a portion of their gain to compensate the losers sufficiently to ensure they were at least as well off as they were prior to the reallocation inefficient allocations fail to maximize net benefit Discounting present value: time value of money o X=money, r= discount rate, n= years X(1+r)^n PV[Bn]= Bn (1+r)^n High risk of adverse event= low discount rate (r) Low risk of adverse event= high discount rate (r) Dynamic efficiency: (time is a factor) the presentvalue criterion provides a way for comparing the net benefits received in one period with the net benefits received in another ex, the combustion of depletable resources such as oil Unit 3: Intrinsic value is contrasted with instrumental value in which the value of the environment is derived from its usefulness in satisfying human wants Types of values 1. use value reflects the direct use of the environmental resources if you used one of your senses (sight, sound, touch, taste, or smell) you have used the resource 2. option value reflects the value people place on a future ability to use the environment the desire to preserve the potential for possible future use willingness to pay to preserve the option to use the environment in the future even if one is not currently using it 3. nonuse or passive use values the resource is not actually used up (consumed) in the process of experiencing it bequest value: the willingness to pay to ensure a resource is available for your children and grandchildren
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