vocab res econ exam 2

Equilibrium

• a state where the allocation, price, and extraction rate of natural resource are balanced, meaning that the market or intertemporal forces have settled into a steady path where no agent has an incentive to change their behavior 

  • Meeting points of the lines 

  • At equilibrium, resources are allocated so that supply equals demand at the at the equilibrium price - there is no pressure for the market to change - represented by quantity on the x-axis at equilibrium 

Allocation

• how a resource is distributed among different uses or users 

Efficient production of the good

• producing a good or service at the lowest possible cost using the maximum capacity of available resources and technology, without wasting inputs 

Aggregate demand

• aggregate demand for private goods is the horizontal summation of individual demand curves - concept representing the total planned spending or total demand for all finished goods and services in an economy at a given overall price level and time period - the sum of demands for goods and services 

Static situation

• a state where the allocation, use, and availability of resources are evaluated at a single, fixed point in time, with underlying variables (such as total factor inputs, technology, population, and preferences) held constant - focusing on right now, and not how actions now may impact the future 

Marginal cost

•  the change in total cost resulting from a one-unit change in output - the charge in total production cost that comes from making or providing one additional unit of a good or service 

Marginal benefit

• = demand. Marginal = next. Marginal benefit = the benefit you're getting from the next unit (pizza example, you value your first slice and are willing to pay more than you are for a third slice. You get more of a benefit from your first slice if you are really hungry, and not as great as a benefit from the third slice) 

Dynamically efficient level

• where demand (marginal benefit) = MCC + MUC (marginal current cost + marginal user cost, total marginal cost) - this accounts for both current harvesting costs and the cost of having fewer resources available in the future 

Marginal current cost

change in total production cost that comes from making or serving one additional unit of output

Resource rent

• the surplus value or supernormal profit generated from extracting or using a natural resource. = the total market revenue earned from the resource minus all costs of production and extraction, including a normal return on investment 

  • The profit a resource earns after you pay the cost of obtaining it 

Rent

• the extra economic benefit earned from using or extracting a natural resource after subtracting the costs of extraction 

Efficient extraction

• the intertemporal allocation of a nonrenewable or renewable resource that maximizes the total net present value PV of social benefits over time 

Marginal cost (MC)

actual cost of extracting that unit

• Period 0: extracting more, higher supply → lower price 

• Period 1: extracting less bc lower supply → higher price 

• mathematically, since 1/(1+r) < 1, the future net benefit (p1 - MC) must be larger than todays net benegit (p0 - MC) for the equation to balance

Marginal user cost (MUC)

•  future benefit you give up by extracting that unit today 

  • Captures the marginal effect on the present value of future net benefits from a decision made today 

  • ^ Extracting one more unit today is efficient when its net benefit equals the value of the future opportunity you sacrifice

Net benefit:

the total economic benefit - the total economic cost of using, extracting, or conserving a natural resource … measures overall net gain to society (or specific group) after accounting for all market and non-market expenses, environmental impacts, and opportunity costs

Maximum sustained yield (MSY)

• the largest average catch or harvest that can be continuously taken from a species stock over an indefinite period under prevailing environmental conditions, without impairing the population’s ability to reproduce and replenish itself 

  • Generally not the most efficient 

  • MSY is only efficient when the max sustainable harvest also maximized net economic benefit 

  • ^^ EFFICIENT LEVEL IS A POINT ON THE X-AXIS OF THE GRAPH

Maximum resource rent

•  the highest possible economic rent or supernormal profit that can be extracted from a finite, non-renewable natural resource (such as oil, gas, or minerals) over its entire extraction lifecycle 

  • ^^ MAX RESOURCE RENT IS BETWEEN TWO POINTS ON THE Y-AXIS

Open access level of effort

the point of economic and biological equilibrium where total revenue equals total cost (TR = TC), resulting in zero economic profit (pi = 0)