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Review for Quiz 1

Review for Quiz 1. Peter Berck 2007 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 2007 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 • willingness and consumer surplus • 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. Farm Programs • Raise price • deficiency payments/target price program • Treasury outlay • Quantities produced and consumed • loan program (CCC) • Treasury outlay • Quantity stored • Conservation reserve, set aside, etc reduce gov’t surplus of wheat, corn, soybeans • Give Away • homestead, railroad land grants

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

  6. Demand PT Supply QT Deficiency Payment Deficiency Payment

  7. 2 more types • Financial Institutions • Land Bank • Build Stuff • Railroads, dams

  8. 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

  9. Demand Curve Price of Wine is 8

  10. Exact Money Measures • CV and EV and CS are all very close for marketed goods • Not necessarily so for non-market goods

  11. Valuation • Revealed Preference • Travel Cost • Hedonic • Averting behavior • Gives use value, not passive or non-use value

  12. Stated Preference • Steps: background, specific problem (wolf fund, escort ships), money can be used for other things, Q: Would you vote yes or no… • Obtains passive as well as use values • Lies possible

  13. The Point • We should do things for which the benefits (from valuation study) are greater than the costs.

  14. 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

  15. What Goes Wrong With Markets • Reasons for • No ownership • Externalities • Public Goods • Insufficient weight on future • Government Failure

  16. Food Stamps Price of wine Is 2. ?Price of Bread ?Income gain from Stamps ?Amount of food Stamps ?Food stamps or cash

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