what is economics concerned with?
allocating scarce resources among competing uses for the greatest benefit.
the economy consists of what two sections? and the interactions between those 2 create what 2 markets?
- households
- Firms
- market for goods and services
- market for factors of production
In the circular flow model what is not captured?
natural resource regeneration and the effect of waste and pollution.
natural resource economics:
economics of resource use and extraction
environmental economics:
economics of pollution
the broader circular flow model, explain how it is diffrent then the other?
ecological system has its own circular flow, determined by physical and biological law rather than economic. Only has 1 net input (sun) and one net output (waste heat), everything else is contained in the ecosystem as waste or needs to be recycled.
environmental source function:
ability to make services and raw material available for human use.
how can the source function be degraded?
- resource depletion: extraction rate >regeneration rate
2. Pollution: contamination reduces its functon and capacity
environment sink function:
ability to absorb and render harmless the waste by-products of human activity, function is overtaxed when waste volumes are too great in a given period or when too toxic
traditional economics:
uses a set of models and techniques rooted within the standard neoclassical economic theory- applied to both non-renewabl and renewable resources
Microeconomics:
considers individual decision makers within an economy (consumers, household, firms)
environmental microeconomics:
the use of microeconomic techniques such as economic valuation, property right rules and discounting to determine an efficient allocation of natural resources and environmental services
macroeconomics:
considers broader aggregates of economic activity such as uneployment, inflation and econmic growth
environmental macroeconomics:
considers large scale environmental issues requiring a broader perspective ex.) global climate change or the ozone.
opportunity cost:
the value of the next best alternative use that must be foregone in order to satisfy the chouuce. Not restructed to monetary or financial costs.
Production possibility frontier:
maximum production level of one commodity for any given production level of the other commodity, given the existing state of technology.
net benefit of preserving habitat=
benefits of avoiding species extinction - cost of lost lumber production (opportunity cost)
efficiency:
an efficient allocation is one that maximizes the net benefits from resource use.
what does a demand curve show?
shows the quantity demanded at each possible price, holding constant the other factor that influence purchases.
law of demand:
the quantity of a good or service demanded by consumers will decrease as the price increases
willingness to pay (WTP)
the maximum amount of money people are willing to pay for a good or service
Total WTP for a given consumption level refers to what?
the total amount a person would be willing to pay to attain that consumption level. (the area under the curve)
total benefits for a given level of consumption:
is the area underneath the demand curve to the left of that consumption level.
change in the quantity demanded:
movement along a demand curve at different prices
if there is change in demand what happens to the demand curve?
the entire demande curve shifts when other relevant factors are changing such as income,
each indivdual consumer will have a slightly different demand function,why?
income, personal preferences and information
the sum of individual demand functions within a society represents what?
the social demand function for the good or service.