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Chapter 17 Economics of Outdoor Recreation

Chapter 17 Economics of Outdoor Recreation. Outdoor recreation in many developed countries has grown rapidly in the latter part of the 20 th century. snowmobiling. water skiing. cross-country skiing. horseback riding. Table 17-1, p.334.

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Chapter 17 Economics of Outdoor Recreation

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  1. Chapter 17 Economics of Outdoor Recreation Outdoor recreation in many developed countries has grown rapidly in the latter part of the 20th century

  2. snowmobiling water skiing cross-country skiing horseback riding

  3. Table 17-1, p.334 • Data for the U.S. on the number of people who participated in different types of outdoor recreation • Large percent increases in number of participants were in bird watching, hiking, backpacking, and sightseeing • Percent increases in number of participants in fishing and hunting were small • To some extent this may reflect the impacts of the environmental movement, which has tended to put greater emphasis on nonconsumptive uses of resources rather than the traditional consumptive uses • Traditionally, much of the supply of outdoor recreation resources has been a public function • In recent decades there has developed a privately provided market in outdoor recreation, from ski resorts to fishing and whale watching

  4. 1. The Demand for Outdoor Recreation Figure 17-1, p.335 • Demand curves for an imaginary public park: • Horizontal axis: visitor-days, defined as the total number of day-long visits (two half-day visits make one visitor-day); vertical axis: the entrance price to visit the park • There are a series of aggregate demand curves, each pertaining to a different time period (10 years ago, the current period, and 10 years in the future), arrived at by summing the individual demand curves of visitors to the park • q1, q2, and q3: numbers of visitor-days if entrance fees = 0 • Population growth, income growth, transportation improvements or drops in the price of gas, and taste and preference toward outdoor recreation shift D to the right

  5. Efficient Visitation Rates Figure 17-2, p.337 • D is market demand curve for visits to a public park (MPB on slide 9 ) • D does not account for congestion externalities (MEB on slide 9)—when the rate of visitation increases, more visitors cause congestion that lowers the value of the visitation experience; if entrance fees are 0, there are open-access externalities—the users of the resource inflict on one another in the form of diminished resource value (q0: open-access level of visitation)

  6. Efficient Visitation Rates (con’t) • Marginal costs of operating the park are constant at a level of MC (MSC on slide 9 ) • Curve A is MSB on slide 9 • MSB = MPB + MEB; MEB is negative though!!! • In order to lead to the socially efficient use rate q*, an extra fee = ‒MEB = congestion cost = C must be put into place • Total fee = MC + C

  7. ECO424-Ch6-slide 6

  8. Modeling a Tax (on a negative consumption externality) $ tax = ‒MEB at QE MSC a Amount of tax b MPB MPBt MSB = MPB + MEB 0 QE QC Q ECO424-Ch7-slide 23

  9. 2. Rationing by Price • Rationing: the controlled distribution of scarce resources, goods, or services; rationing controls the size of the ration, one’s allotted portion of the resources being distributed on a particular day or at a particular time; in economics, rationing is an artificial restriction of demand • Rationing by price: charge an entrance fee sufficiently high that visitation is limited to q* • Nonprice rationing methods: limit entry to those people who meet some characteristics; first-come, first-served

  10. P Percentage change in Qd Price elasticity of demand P1 = P2 Percentage change in P D Q Q1 Q2 15% = 1.5 10% 0 Pricing and Total Revenue Example: P rises by 10% Along a D curve, P and Q move in opposite directions, which would make price elasticity negative. We will drop the minus sign and report all price elasticities as positive numbers. Q falls by 15% Rule of thumb: The flatter the curve, the bigger the elasticity. The steeper the curve, the smaller the elasticity. Greg Mankiw’s Microeconomics-- CHAPTER 5 ELASTICITY AND ITS APPLICATION

  11. % change in Q Price elasticity of demand = = % change in P P P1 P2 Q D Q1 Q2 0 “Inelastic demand” < 10% < 1 10% D curve: relatively steep P falls by 10% Consumers’ price sensitivity: relatively low Elasticity: < 1 Q rises less than 10% Greg Mankiw’s Microeconomics-- CHAPTER 5 ELASTICITY AND ITS APPLICATION

  12. % change in Q Price elasticity of demand = = % change in P P P1 D P2 Q Q1 Q2 0 “Unit elastic demand” 10% = 1 10% D curve: intermediate slope Consumers’ price sensitivity: P falls by 10% intermediate Elasticity: 1 Q rises by 10% Greg Mankiw’s Microeconomics-- CHAPTER 5 ELASTICITY AND ITS APPLICATION

  13. % change in Q Price elasticity of demand = = % change in P P P1 D P2 Q Q1 Q2 0 “Elastic demand” > 10% > 1 10% D curve: relatively flat Consumers’ price sensitivity: P falls by 10% relatively high Elasticity: > 1 Q rises more than 10% Greg Mankiw’s Microeconomics-- CHAPTER 5 ELASTICITY AND ITS APPLICATION

  14. Percentage change in Q Price elasticity of demand = Percentage change in P 0 • If demand is elastic, then price elast. of demand > 1 % change in Q > % change in P • The fall in revenue from lower Q is greater than the increase in revenue from higher P, so revenue falls. Revenue = P x Q Greg Mankiw’s Microeconomics-- CHAPTER 5 ELASTICITY AND ITS APPLICATION

  15. Percentage change in Q Price elasticity of demand = Percentage change in P 0 • If demand is inelastic, then price elast. of demand < 1 % change in Q < % change in P • The fall in revenue from lower Q is smaller than the increase in revenue from higher P, so revenue rises. Revenue = P x Q Greg Mankiw’s Microeconomics-- CHAPTER 5 ELASTICITY AND ITS APPLICATION

  16. Differential Pricing Figure 17-6, p.345 • Many parks have capacity limits, either hard limits like a certain number of campsites or visitation levels where congestion externalities begin to take hold • Consider a park with a certain number of picnic sites q0; MC is constant; D1 is for weekday visitors and D2 is for weekend visitors • Two prices are required: during the week, set p1 = MC. But this price will not work for weekends, because quantity at this price will be q2 which exceeds the capacity q0; then set price = p2 during the weekends, thus total costs = c + d + e, total revenue = a + b + c + d + e, and profit = a + b, or, still charge p1 on the weekends, but with nonprice rationing

  17. 3. Ecotourism • A form of tourism involving visiting fragile, pristine, and relatively undisturbed natural areas, intended as a low-impact and often small scale alternative to standard commercial tourism • Its purpose may be to educate the traveler, to provide funds for ecological conservation, to benefit the economic development of local communities, or to foster respect for different cultures • Since the 1980s ecotourism has been considered a critical endeavor by environmentalists, so that future generations may experience destinations relatively untouched by human intervention

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