Markets Flashcards
(20 cards)
Explain Market capitalism under Hackett
Socioeconomic system in wich scarce resources and the goods are privately owned, traded and operated with the purpose of generating profit. These are allocated in way of descentralized markets i.e many individual and separate market transactions driven by each individual self interest. In a capitalist society, Property rights are protected by the rule of law. It’s opposed to centrally planned economic systems, where resources (land and capital) are owned and allocated by a central government.
Define property rights under hackett
These are the rights of excluding others from accessing to a resource as well as having the liberty of trading, harvesting, managing and selling that resource. Property right establish the relationship between people and things.
What is the rationale behind applying economic theory to the enviromental studies?
Economics encompasses the study of both market and non market scarce resource allocation. Since scarcity is a common factor in every decision we make, the application of economics and rational economics decisions is present in every aspect of the resource allocation as well as the managment and protection of the enviroment and natural resource stock. Because economics. Tom Power observes that the economic analysis of the enviroment is challenging and important precisely because its value is not alwasy conveniently represented in the market for human benefit and well being.
What are the conditions for a well functioning market?
- functioning market institution with rules and regulations
- Large number of buyers and sellers, each one small relative to thee total, no individual has market power (manipulating and altering the market position).
- buyers and sellers are unable to collude (cartel) and form organizations to gain market power
- Private property rights are well defined and enfonrceable. They regard resources goods na services
- No externalities exist
- low cost entries for buyers and sellers this limits the market power of large firms. Low cost exists (going out of business), is relatevilely easy given the high salvage value.
- TRansaction costs (fees,tax,regulatory cost) are low, this way transactions are not choked
- Information for all parties is perfect and available at low cost
Explain the concept of scarcity.
Humans have unlimited needs and wants. However there are limited resources that result in Factors of production (goods and services) The result is that people cant have what they want and need to apply reasin to choose.
Further explain the concept of scarcity in the context of natural resource economics.
As most of what earth provides are non renewable commodities, the depletion of these decrease the factors of production (Inputs for production: Land, Labour, entrpeneurship and captial). When non renewables are completely depleted, they are lost forever.
What is a market failure
Market failures occur when one or more of the conditions of a well functioning market are not met in a substantial way. A market failure resutls in the inefficient allocation of resources in a competitive market
Define various types of markets failures (EX)
-Monopoly: this occurs a single sellers dominates the market. This gives the seller great market power to manipulate and control the prices and subsequently the total surpluss of society. In a similar way
- Cartels are a group of sellers that collude to control selling prices and essentially have the consequences and doings of a monopoly.
- Externalities (positive or negative)
-collectivelly consumed goods (CPR or Pub. goods): Individual proprty rights are not assigned and so the are collectively produced and consumed.
Examples include parks, highways, emergency services, marine fisheries, rivers, groundwater basins, air, public radio, wilderness areas, and recreation sites.
Goods tend to be underproduced and overconsumed. Human-made collectively consumed goods are affected by free riders, that count on consuming what is provisioned by others.
The private inputs (fianancial efforts) are privately owned whilst output is collectively consumed. The provision in a positive externality.
taxes to fund public broadcaster cover the cost paid for the unpaid benefit (broadcasting).
Oveconsumption is specific to both whilts underproduction is specific to CPRs. Apropiation from CPRs can lead to over exploitation and deterioiration - tragedy of the commons.
- Imperfect information on quality or safety. this happens when too much or too little is consumed or produced when aspects like quality or safety are understated or overstated.
- Inequity is another type of market failure. This is a failure of Distributive justice. It refers to the just or ethical allocation of goods in a society. Society has a duty to redistribute resource in order for everyone to meet basic needs.
What is an externality
Externalities are a positive or negative impact in the society that occur as a by product of trade and production
Describe what is a positive externality and provide examples
A positive externality is an unpaid benefit enjoy by others in society that is generated as a by-product of trade and production. These benefits for third parties are know as social benefits. The marginal external benefit is the increase in total external benefits that occurs as a consequence of a small increase in quantity of good.
- As a by-product of a privately owned pastureland, people enjoy benefits like clean air, open views and wildlife conservation.
-In peru, near the city of chimbote, there is a new irrigation project that converts land into farmland. As a byproduct of this, farmers life quiality increases, improving education for their children and better health as they are able to pay for medicines
- Vaccination: byproduct, diseases spread less.
How do externalities lead to market failure?
Well funtionning competitive markets in equilibrium are efficient. For equilibrium too be achieved, each buyer and producer only considers the private benefits and costs when making a decision since there is no extra compensation. As a result, the markets tends to underproduce goods or services with positive externalities, when there are substantial external benefits, equilibrium properties fail.
How do negative externalities lead to inneficient allocation of resources
Efficient allocation of resources happen when the maximum possible surplus is achieved, that is whe the MSB equals MSC. In the context of negative externalities, the private costs that firms consider is lower than the true social cost beacuse it ignores the external damage to society. However, if the companies internalize the social costs of the externality for example via pollution tax, the quantity supplied will reduce because now the selling price goes up, changing the market equilibrium, reaching the socially opyimum amount. This makes the new equilibrium provide a much smaller total surplus to society. This subtraction form the total surpluss is know as the deadweight loss
Define Market Demand and the law of diminishing marginal utility
It is the quantity of a good or resource a buyer is willing and able to buy. Each unit of good these services or product provide are measured as marginal utility. The Law of diminishing marginal utility occurs when each succesive unit consumed generates less marginal utility than the preceding unit.
Define market equilibrium
This happens when demand equals supply. This means there is neither excess demand (shortage) nor excess supply (surplus)
Define efficient resource allocation
defines how we measeure the welfare of market participants. this shpuld maximize total surplus. Consumer surplus refers to the gain from a consumer made from a purchase (a “bargain” has great surplus). a Producer surpluss is the gains that exceed the costs covered. the sum of these two is the total surplus and this is how selfare is measured.
Define supply and the law of diminishing marginal returns
Supply refers to the goods and services sellers are willing and able to sell. A marginal cost refers to increase in total cost by a unit of output. The law of diminishing marginal cost refers to the decline of the marginal productivity (each additional unit of production) if a variable input (such as a worker) is added tho a fixed input such as a factory.
Describe any five reasons why it might be difficult for government interventions to perfectly resolve positive and negative externalities
Describe a negative externality and provide examples
A negative externality is a un commpensated cost that is borne by society as a spillover effect. Ij pther words, when an activity harms aother in society and are not properly compensated. Additionally, the market price of the product does not include the addiotianal costs, so decision makers ignore them, leading to outcome where too much of the harmful activity takes place from societys perspective. The unpaid cost is known as marginal external cost.
-An example is the new hotel in the middle of limas coastline. This development will bring surpluss to producers and consumer boosting the conomy. however, marginal external cost will remain unpaid as ecosystems will be damaged in construction and also species of fishes and plant disturbed by the heavy transit of big ships. Additionally, pollution from these ships will damage the area for residents and animals. Urban impact and damage will also be a cost borne by society. The loss of pristine beaches means that the community loses out on recreational, aesthetic, and potentially tourism-related benefits. These costs are “external” because the developers or investors do not pay for the damage, nor are they directly compensated for the loss of this public resource.
What is a conservation easement?
When a land owner sells the development rights to an organization. These organizations (non-profits or district) conserve the land as it is and there are few remainign less extracting rights such as harvesting.
In the context of market failures, which form of intervention do you think is best? What are the possible trade-offs?
