Env. Econ & Policy

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Economics

University/Undergrad

Last updated 3:28 AM on 2/9/23
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26 Terms

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Economics
the study of how to make the best decisions
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A producer should produce one more item
Marginal Revenue > Marginal Cost (MR > MC)
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A consumer should consume one more item
Marginal Benefit > Price (MB > P)
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Environmental Economics
the study of how to make the best decisions that involve or affect the environment
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Models
a simplified description or depiction of reality
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Model assumptions
Everyone is a pricetaker

homogeneous goods

everyone has perfect information
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Demand curve =
Marginal Benefit curve
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Supply curve=
Marginal Cost curve
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Marginal consumer surplus
the consumer surplus on a single item, which is equal

to the person’s MB of the item minus the price
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(Total) consumer surplus
the total net benefits to consumers for the item being available at a set price
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Marginal producer surplus
the producer surplus on a single item, which is the price received minus the marginal cost
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Total producer surplus
the total net benefit to producer of selling an item at a set

price
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Total Surplus
the surplus to everyone in society
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Economic Efficiency
occurs when available resources and technology produce the greatest possible net benefits for society
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Market Failure
occurs when the market fails to achieve economic efficiency
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Externalities
an effect of an action on another party not involved in the action
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Marginal external cost is the…
the third party not involved
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Marginal social cost is the…
everyone else
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Negative externalities
MSC > MCp or MEC > 0 for any given unit
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Deadweight loss
a lose in total surplus resulting from being at some Q other than Q\*
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Positive Externalities
MSC < MCp or MEC < 0 (negative cost is a benefit)
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Quote
a restriction on the quantity that can be produced/consumed
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How much should a tax be
the vertical distance between the MSC and MCp curves at Q\*
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Externality is internalized
if market actors have an incentive to act in a way that maximizes total surplus in the presence of an externality
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Pigouvian Tax
type of tax that internalizes an externality for a negative externality
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Pigouvian Subsidy
parallel policy to the Pigouvian tax for a positive externality