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Review for Quiz 1

Review for Quiz 1. Peter Berck 2011 Env . Econ. 1. Supply and Demand. Supply and Demand demand vs. quantity demanded supply vs. quantity supplied movements along vs. shifts of S & D price ceiling, price floor economic shortage/surplus market & individuals' demand curves

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Review for Quiz 1

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  1. Review for Quiz 1 Peter Berck 2011 Env. Econ. 1

  2. Supply and Demand • Supply and Demand • demand vs. quantity demanded • supply vs. quantity supplied • movements along vs. shifts of S & D • price ceiling, price floor • economic shortage/surplus • market & individuals' demand curves • horizontal summation • specific tax • tax incidence • elasticity of demand and supply • complementary vs. substitute goods • normal and inferior goods

  3. Tax example Ps = 0.25 Q Pd = 3 – .4 Q t= .6 D-1(Q) – t = S-1(Q)

  4. Tax • Incidence • Flat and vertical supply curve

  5. Demand PL Supply QD QL Loan rate ?treasury outlay Gov’t Purchases

  6. Consumer Theory • consumption bundle • preferences • budget line • indifference curve • properties of indiff. curves • slope down • don't cross • "moon" shaped • tangency of budget line & indiff curve • normal vs. inferior goods • derivation of demand curves

  7. Demand Curve Price of Wine is 8

  8. Normal & Inferior Again • What happens to q demanded with increased income?

  9. Sale • 10 at normal price of 5 and then rest at half price of 2.5. • Price of other good is 1 and income is 100

  10. Pareto Improvement • When at least one party to a deal is made better off and no parties are made worse off the deal is said to be Pareto improving. • Examples of market trades that are pareto improving • Examples of market trades that are NOT pareto improving

  11. What Goes Wrong With Markets • Reasons for • No ownership • Externalities • Public Goods • Insufficient weight on future • Government Failure • Give examples of each

  12. Surplus • Total Willingness to Pay • Amount Paid • Consumer Surplus • Surplus from a public good

  13. EV/CV/WTP/WTA • Define EV and CV for a price change. • What is Willingness to Pay and Willingness to Accept (they are forms of a question to elicit a value) • Give examples of how WTP or WTA can elicit CV and EV

  14. Revealed Preference • What is revealed vs. state preference? • Use v. non use value • Which methods work for use? For nonuse? • “arm chair environmentalist” • (this takes us to page 113 of BH, as far as we go for 2011 quiz one.)

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