2. Market structures and environmental problems Flashcards
(25 cards)
Do policies adapt based on the type of good they are addressing?
Yes, they are directly related to the characteristics of the good
In what two ways can goods be classified?
Rival/ non-rival: consumption by one person prevents consumption by another
Excludable/ non-excludable: If a supplier can limit access to a good
What are the characteristics of a private good?
Excludable, rival
- May involve externalities
- Private consumption creates harms (or benefits to others)
What are the characteristics of a club good?
Excludable, non-rival
- May involve externalities
- Private consumption creates harms (or benefits to others)
What are the characteristics of an open-access good?
Rival, non-excludable (fishing)
- May involve overconsumption (tragedy of the commons)
- Private incentives result in individual harm
What are the characteristics of a public good?
Non-rival, non-excludable (defence)
- May involve free-ridership
- People do not have an incentive to pay for the good
What is an externality?
It exists when:
One individual or firm directly impacts the well-being or profits of others without compensation or permission. When your activates affects someone else not through prices typically
What channel do externalities not flow through?
Externalities do not flow through changes in price
What is the marginal private benefit shown by?
The regular demand curve shows the benefit to the consumer
What does a negative consumption externality do?
A negative consumption externality reduces the utility of people other than the consumer
How can you argue the point that there is too little pollution?
This point can be argued by arguing that polluting can bring benefits. We can’t have too little pollution but we may want this trade-off between pollution and the benefits that come from having pollution (eg. Factory produces vaccines)
How do public goods lead to the free-rider problem?
- People want to consume a public good
- People do not want to contribute to paying for the public good
- Everyone hopes someone else will contribute
What is the aggregate demand for rival goods?
- Each person acquires enough for themselves
- All consumers are charged the same price
What is the aggregate demand for non-rival goods?
- Everyone with access consumes all of the available amount
- If excludable, then producers could charge for use
How do we find the aggregate demand curve?
Sum individual inverse demand curves vertically to get aggregate marginal WTP
What are some examples of public bads?
- greenhouse gasses
- ocen pollution
- air pollution
How do you calculate the aggregate marginal damage to all individuals effected?
The vertical sum of marginal damages to all individuals affected
What is the optimal provision of public goods?
Non-rival goods should be provided to the point where the marginal cost equals the sum of marginal benefits accruing to all consumers
How does the optimal provision of public goods differ to the optimal provision of private goods?
The optimal provision of private goods is where the marginal cost equals the benefit of the marginal consumer
What is the logic behind the free-rider problem?
If others supply the public good, I can get the benefits of consumption without paying for it so I have little incentive to pay for the good
What are the characteristics of open access resources?
- The are non-excludable
- Rival in consumption
Why can the features of open-access resources lead to over-exploitation?
- Each user cares about their own private costs and benefits
- Each user fails to take into account their own use depletes the resources available for others
- Individuals do not have incentive to reduce use to allow the resource to replenish
How can open access resources be managed?
- No management = heavy exploitation
- Regulated access
- Communal enforcement
What can we consider over-exploitation to mean?
Over-exploitation could also be removing it faster than it replenishes itself.
