forestry 314

basic decisions from household or individuals

1. how much of each product (or output) to demand

2. how much to spend today, and how much to save for the future?

key factors determining the quantity of goods or services demanded by a household or individuals

• price of goods or services

• income available

• price of other products available

• preference, tastes, and expectations about future income and prices

budget constraints

defines a set of goods that consumers can afford given their incomes and the goods prices

indifference curve

through a consumption bundle consists of all bundles of goods that leave the consumer indifferent to the given bundle

marginal rate of substitution

measures the rate at which the consumer is just willing to substitute one good for the other

utility (happiness) function

is a way of assigning a number to every possible consumption bundle such that more-preferred bundles get assigned larger numbers that less-preferred bundles

competitive market

a market compromising numerous buyers and numerous sellers of a particular good or service with each buyer and seller having zero influence on the market price

characteristics of a perfectly competitive market

• goods are sold exactly the same

• buyers and sellers are numerous with no influence on goods prices

• buyers have perfect information on product qualities and prices

• sellers have perfect information on technologies and inputs prices

• no barrier for entry and exit

externalities

costs or benefits of economic activity that are external to the firm or individual that creates them and that accrue to other people, positive or negative

non-rivalrous

one person consumes the good it does not reduce the quantity of the good available for other consumers

non excludable

means that producers cannot prevent some consumers from consuming the good

public goods

non-rivalrous and non-excludable

club goods

non-rivalrous and excludable

common goods

non-excludable and rivalrous

private goods

excludable and rilvalrous

monopoly

refers to an industry compromising only one firm producing one good with no close substitute

oligopoly

a market with a limited number of firms each with a degree of market power

monopsony

a market with one single buyers and many sellers

policy failure

when intervention fails to achieve its stated goals of efficient allocation of resources

public interest theory

supports the idea that government decisions are done in the interest of the public and are done to advance the public interest

interest group theory

supports the idea that those involved in government policymaking act in their own best interest, often crowding out the public interest to make room for the interest of special groups

annuity

refers to a fixed amount of money paid each year for a finite number of years or forever

to evaluate opportunities in forestry we need some efficiency criterion

• investment opportunities generally involve costs and benefits spread over time

• evaluating investments weighing the benefits against the costs, accounting for the timing of their occurences

criteria for investment decision

• net present value

• equivalent annual income

• benefit/cost ratio

• internal rate of return

• land expectation value