Econ 2100 First Test

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circular flow model

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illustrates the real and monetary flows of economic activity through the factor market and the output market

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materials balance model

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positions the circular flow within a larger schematic to show the connections between economic decision making the the natural environment

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natural resource economics

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a field of study concerned with the flow of resources from nature to economic activity

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residual

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the amount of a pollutant remaining in the environment after a natural or technological process has occurred

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environmental economics

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a field of study concerned with the flow of residuals from economic activity back to nature

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first law of thermodynamics

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matter and energy can neither be created nor destroyed

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second law of thermodynamics

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nature's capacity to convert matter and energy is not unlimited

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pollution

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the presence of matter or energy whose nature, location, or quantity has undesired effects on the environment

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natural pollutants

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contaminants that come about through nonartificial processes in nature

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anthropogenic pollutants

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contaminants associated with human activity

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stationary source

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a fixed-site producer of pollution

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mobile source

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any nonstationary polluting source

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point source

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any single identifiable source from which pollutants are released

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nonpoint source

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a source that cannot be identified accurately and degrades the environment in a diffuse, indirect way over a broad area

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local pollution

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environmental damage that does not extend far from the polluting source

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regional pollution

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degradation that extends well beyond the polluting source

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global pollution

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environmental effects that are widespread with global implications

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environmental quality

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a reduction in anthropogenic contamination to a level that is "acceptable" to society

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sustainable development

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management of the earth's resources such that their long-term quality and abundance is ensured for future generations

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biodiversity

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the variety of distinct species, their genetic variability, and the variety of ecosystems they inhabit

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risk assessment

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qualitative and quanitative evaluation of the risk posed to health or the ecology by an environmental hazard

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risk management

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the decision-making process of evaluating and choosing from alternative responses to environmental risk

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allocative efficiency

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requires that resources be appropriated such that the additional benefits to soceity are equal to the additional costs

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cost-effectiveness

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requires that the least amount of resources be used to achieve an objective

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environmental justice

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fairness of the environmental risk burden across segments of society or geographical regions

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command-and control approach

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a policy that directly regulates polluters through the use of rules or standards

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market approach

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an incentive based policy that encourages conservation practices or pollution reduction strategies

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management strategies

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methods that address existing environmental problems and attempt to reduce the damage from the residual flow

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pollution prevention

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a long-term strategy aimed at reducing the amount or toxicity of residuals released to nature

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market

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the interaction between consumers and producers to exchange a well-defined commodity

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private good

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a commodity that has two characteristics, rivalry in consumption and excludability

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demand

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the quantities of a good the consumer is willing and able to purchase at a set of prices during some time period

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law of emand

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there is an inverse relationship between price and quantity demanded of a good

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market demand for a private good

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the decisions of all consumers willing and able to purchase a good, derived by horizontallly summing individual demands

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supply

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the quantities of a good the producer is willing and bale to bring to market at a given set of prices during some time period

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law of supply

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there is a direct relationship between price and quantity supplied of a good

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market supply of a private good

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the combined decisions of all producers in a given industry derived by horizontally summing individual supplies

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equilibrium price and quantity

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market clearing price associated with the equilibrium quantity where quantity demanded equals quantity supplied

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shortage

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excess demand of a commodity equal to quantity demanded-quantity supplied that arises if price is below its equilibrium price

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surplus

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excess supply of a commodity, arises if price is above its equilibirum level

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allocative efficiency

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requires that resources be appropriated such that the additional benefits to society are equal to the additional costs

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total profit

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TR-TC

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profit maximazation

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where MR=MC or Mprofit =0

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technical efficiency

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production decisions that generate maximum output given some stock of resources

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consumer surplus

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net benefit to buyers estimated by the excess of MB of consumption over market price aggregated over all units purchased. involves demand curve

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producer surplus

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involves supply curve

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society's welfare

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the sum of consumer surplus and producer surplus

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deadweight loss to society

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net loss of consumer and producer surplus due to an allocatively inefficient market event.

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market failure

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the result of an inefficient market condition

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public good

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a commodity that is nonrival in consumption and yields benefits that are nonexcludable

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nonrivalness

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the characteristic of indivisible benefits of consumption such that one person's consumption does not preclude that of another

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nonexcludability

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the characteristic that makes it impossible to prevent others from sharing in the benefits of consumption

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market demand for a public good

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the aggregate demand of all consumers in the market, derived by vertically summing their individual demands

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nonrevelation of preferences

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an outcome that arises when a rational consumer does not volunteer a willingness to pay because of the lack of a market incentive to do so

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free-ridership

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recognition by a rational consumer that the benefits of consumption are accessible without paying for them

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externality

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a spillover effect associated with production or consumption that extends to a third party outside the market

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negative externality

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an external effect that generates costs to a third party

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positive externality

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an external effect that generates benefits to a third party

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marginal social cost

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the sum of marginal private costs and marginal external costs

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marginal social benefit

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the sum of marginal private benefit and marginal external beneift. MPB=MSB because we assume that there are no positive consumption externalities.

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competitive equilibrium

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the point where marginal private benefit equals marginal private cost or where marginal profit=0. MPB=MPC or mprofit=0

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efficient equilibrium

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the point where marginal social benefit equals marginal social cost, or where marginal profit ewuals marginal external cost. MSB=MSC or Mprofit=MEC

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property rights

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the set of valid claims to a good or resource that permits its use and the transfer of its ownership through sale

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coase theorem

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assignment of property rights, even in the presence of externalities, will allow bargaining such that an efficient solution can be obtained.

assumes transactions are costless, damages are accesible and measurable

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common property resources

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those resources for which property rights are shared

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ambient standard

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a standard that designates the quality of the environment to be achieved, typically expressed as a maximum allowable pollutant concentration

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technology-based standard

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a standard that designates the equipment or method to be used to achieve some abatement level

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performance-based standard

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a standard that specifies that a pollution limit to be achieved but does not stipulate the technology

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allocatively-efficient standards

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standards set such that the associated marginal social cost (MSC) of abatement equals the marginal social benefit (MSB) of abatement

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marginal social benefit (MSB) of abatement

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a measure of the additional gains accruing to society as pollution abatement increases

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marginal social cost (MSC) of abatement

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the sum of all polluter's marginal abatement costs plus government's marginal cost of monitoring and enforcing these activities

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marginal abatement cost (MAC)

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the change in costs associated with increasing abatement, using the least-cost method

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market level marginal abatement cost

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the horizontal sum of all polluter's MAC functiond

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marginal cost of enforcement (MCE)

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added costs incurred by government associated with monitoring and enforcing abatement activities

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benefits-based standard

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a standard set to improve society's well-being with no consideration for the associated costs

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cost-effectiveness

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requires that the least amount of resources be used to achieve an objective

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command-and control approach

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a policy that directly regulates polluters through the use of rules or standards

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market approach

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an incentive based policy that encourages conservatism practices or pollution reduction strategies

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cost-effective abatement criterion

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allocation of abatement across polluting sources such that the MACs for each source are equal

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pollution charge

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a fee that varies with the amount of pollutants released

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product charge

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a fee added to the price of a pollution-generating product based on its quantity or some attribute responsible for pollution

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pigouvian tax

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a unit chrage on a good whose production generates a negative externality such that the charge equals the MEC at Qe

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emission or effluent charge

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a fee imposed directly on the actual discharge of pollution

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abatement equipment subsidy

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a payment aimed at lowering the cost of abatement technology

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pigouvian subsidy

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a per unit payment on a good whose consumption generates a positive externality such that the payment equals the MEB at Qe

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pollution permit trading system

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a market instrument that establishes a market for rights to pollute by issuing tradeable pollution credits or allowances

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pollution credits

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tradeable permits issued for emitting below an established standard

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pollution allowances

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tradeable permits that indicate the maximum level of pollution that may be released

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deposit/refund system

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a market instrument that imposes an upfront charge to pay for potential damages and refunds it for retunring a product for proper disposal or recycling

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per unit subsidy of pollution reduction

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a payment for every unit of pollution removed below some predetermined level