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EC238 Study Guide - Comprehensive Final Exam Guide - Jack D. Fischer, Economic Equilibrium, Canada


Department
Economics
Course Code
EC238
Professor
Karen Huff
Study Guide
Final

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EC238

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Jack Fischer
EC238 Chapter 1 Notes
What is Environmental Economics?
Efficiency and equity concepts
Economics is the study of how and why people make decisions about the use of valuable
resources
Microeconomics Behaviour of individuals or small groups
Macroeconomics Study of economic performance of economies as a whole
Environmental economics draws from both sides, but mostly micro
Scarcity Not haig eough elatie to oe’s ats; liit the atual eioet a
provide
Opportunity cost Opportunity cost is the highest valued alternative use of a certain
resource
Trade-offs The alternatives individuals, etc. face (Ex. Park or movie)
Marginal benefits The incremental benefits (in dollars) of increasing some good or
service by one unit (also the derivative of a total benefit function)
Marginal costs Incremental costs (in dollar terms) of increasing the output of a g/s by
one unit (also the derivative of a total cost function)
Efficiency Achieving the maximum output per unit input or for a given level of output,
minimizing the costs of attaining it
Equity Concern about how a public policy or other economic decision affects people
with different levels of income or other distinguishing characteristic (who gets benefit
and who pays cost
Economic efficiency
o Producing g/s with resources that is the most valued (walking in a forest vs
buying a computer)
o Economic efficiency Ous he the eoo’s esoues ae alloated to
their best uses; an equilibrium is reached in which the marginal benefits of an
activity equal the marginal costs
Environmental economists also consider equity, etc. in addition to economic efficiency
Equity
o How the economic pie is divided up
o Horizontal equity Treats similarly situated people the same way
o Vertical equity How a policy impinges on people who are in different
circumstances (income, etc.)
o Intergenerational equity Whether future generations will have same
opportunities as current ones
The economic approach
One reason for environmental degradation Lack of moral strength, must be put on
social front burner to counteract (not full solution)
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Jack Fischer
Improving moral standards may be too long of a process, assumption that people
pollute b/c morally underdeveloped is flawed
Looking at pollution economically Pollute b/c it is the cheapest way they have of
solving a certain problem; how to dispose of the waste products remaining after
production and consumption of a good
Incentive Something that attracts or repels people and leads them to modify their
behaviour in some way; an economic incentive is something in the economic world that
leads people to channel their efforts at economic production and consumption in
certain directions
Economic incentives often viewed as consisting of payoffs in terms of material wealth,
there are non-material incentives though
Pollution may be motivated by profit View states rewarded for maximizing profit (in
monetary terms), environmental concerns reduce this profit
Popositio does’t stad up to aalsis, idiiduals, go’ts, etc. pollute as well; profit
motive is not the main cause
Externalities/external effects Exists when market fails to incorporate the social costs
o eefits a peso o fi’s atios hae o othes; aise / of ope aess to
environmental resources and the characteristic of joint consumption
Property rights Give the holder the right to do certain things with a tangible asset; in
environmental econ is typically a type of natural resource (land, water, atmosphere,
etc.)
o Characteristics Whether or not they are exclusive, transferable, divisible,
protected by law
o Defined as private or common property depending on these characteristics
Externalities and property rights
Socially efficient level of pollution Where marginal damages from another unit of
pollution equal the marginal costs of reducing a unit of pollution (marginal abatement
costs)
o Requires the buyers and sellers of g/s to take into account the impact of their
actions on the environment Means assigning prices, generally through go’t
policy, to ecosystem g/s and the waste products
Lack of property rights contribute to environmental problems
Open access The lack of property rights; no one has exclusive right to the natural
resource and no one can be excluded from using that resource (Ex. Atmosphere)
Private property rights Right that is exclusive and typically transferrable (Ex. Land)
Common property rights Right a group of individuals collectively has to exclusive use
of a natural resource (Ex. Pasture owned by community)
Most serious environmental problems involve lots of polluters, may not even be known
to the pepetatos, a ipat futue geeatios; this euies go’t iteetio
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