Preparation for Exam ECON & POL 24/03/09

Week one

A.1) Write down definitions for the following terms:

• Economic efficiency is where something is produced with the smallest amount of costs to make the maximum profit
• Optimum is the most favourable result or the desired option being a success
• Net benefit is the amount of money left after all costs and payments are taken away from the profits
• Public good is an object or something that is taken for granted, such as clean air that costs nothing to have but would cost a lot to make. Eg – clean air is free but if pollution was prevalent and to make clean air would be very expensive.
• Market failure is where a market does not efficiency allocate goods to achieve the greatest possible outcome
• Sustainable development is where the individual or group of people use the current resources to be able to sustain them for coming generations.

 

B.1) Write down short answers to the following questions:

1. What is the aim of traditional economics?

The efficient allocation of scarce resources

2. How do traditional economists see resources?

They see different types of resources in certain ways, people are only consumers and/or labourers and the environment is only a resource nothing more.

3. What do traditional economists think of the idea of intrinsic value?

That nothing has an intrinsic value, that the price of everything is determined by the supply and demand of the product.

 

4. What is the aim of traditional policy makers?

To act in common interest of all citizens

5. What are policy interventions in the market?

They use government interventions to provide market goods and correct market failure. Such as – policies, laws, regulations, market based and information based instruments.

6. How do traditional policy makers see the environment?

That the environment is a common resource with access allocated by the government

7. What is the aim of environmental economists and environmental policy makers?

To efficiently allocate scarce resources in the common interest of all citizens

8. How do they see the relationship between government, the economy, the community and the environment?

Policy makers see the government being in charge, overlapping with the economy and the environment is allocated in with the community, which by the way they are positioned, shows that the environment is the least priority. Traditional economics see the world as the direct link between the community and the environment. The environment and community are not related at all apparently.

 

C.1) Exercise:

Draw the hybrid environmental economic/policy model covered in lecture one. Explain what it means and how it differs from traditional economic and policy approaches.

Blue – the Government Yellow – Economy Red – Community and the Green – the Environment.

The aim of a hybrid environmentalist is to encompass sustainable developments within the environment working with all disciplines together and creating co-operation.

This is different to the Traditionalists as they both see the environment as a resource that will be there forever and they don’t believe in protectingit.

Week Two

A.2) Write down definitions for the following terms:

• Marginal cost is the rate of change at each point of the cost curve
• Marginal benefit is the rate of change at each point of the cost curve
• Dynamic efficiency
• Economic discounting
• Opportunity cost
• Willingness to pay approach to valuation
• Willingness to accept approach to valuation
• Use value
• Non-use value
• Revealed preference strategy for valuation
• Stated preference strategy for valuation
• Benefit-cost analysis

 

B.2) Write down answers to the following questions:

1. Why are total cost curves concave?

Cost curves are concave because it is easier to make the first reductions but harder to make the rest.

2. Why are total cost curves convex?

They are convex because the benefits are high for the first abatement, but then taper off.

3. What is the relationship between maximum net benefit, marginal cost and marginal benefit?

The cost is taken away from the benefit and the maximum net benefit is determined.

4. Would an economically efficient approach to pollution abatement guarantee zero emissions? Why or why not?

No because they will always be producing some amount of carbon emissions whether it be from a cigarette that they are smoking or using a petrol run car.

5. How might the costs of pollution abatement be measured?

These are measured by the lessening of air borne diseases such as asthma.

6. Who ultimately pays for the costs of pollution abatement?

The public, the government impose the taxes on the company who put up their costs up to cover the tax and then the consumer pays the upped price for the product.

7. What are the strengths of benefit-cost analysis?

It is used t compare other options in the market

8. What are the four main criticisms of benefit cost analysis

1.       Decisions should not be looked upon with it alone, other values are relevant

2.        Discounting values for future generations

3.        Some of the aspects of the environment are priceless eg- clean air

4.        The outcome produces losers whose voices are not heard.

 

C.2) Exercise: Draw a graph that indicates the relationship between total cost, total benefit and maximum net benefit. Indicate on the graph the points of marginal cost and marginal benefit where maximum net benefit occurs. Explain the finished graph and what it means.

 

 

Week Three

A.3) Write down definitions for the following terms:

• Market is the consumers, producers or distribute that have, want or sell the product
• ‘The invisible hand’ of the market, is the way that society self regulates itself, thus serving the greater good of the country
• Demand is the total quantity of goods that consumers will buy at any given price
• Supply is the total amount of goods that a producer will make at any given price
• Consumer surplus, is where consumers get a discount on the product as many of them were willing to pay above the equilibrium price
• Producer surplus is where the producer makes a profit as they would have sold the product for a lower price
• Market efficiency is allowing the market to set price and quantity

 

B.3) Write down answers to the following questions:

9. Why does the demand curve slope downwards in relation to price?

It slopes downward because when something is new they can charge a higher price because there is less of it, as there are more they have to charge less because of the market price. As price falls, more people want in on the market.

10. Why does the supply curve slope upwards in relation to price?

When the supply is up then more producers get into the market and make a certain product.

11. What are the three conditions required for an ideal market to achieve efficiency?

1.       When there is a competitive market, both consumers and producers are price takers.

2.       When the consumers and the producers have good information about the quality of the product

3.       When the market is complete, so all costs and benefits are borne by all market players

12. What could make the demand curve shift upwards or downwards?

When the price changes and the quantity sold changes, income and production costs

13. What could make a supply curve shift upwards or downwards?

Recession and government handouts, depending on what happens, the people will either buy more or spend less.

14. What happens to the total consumer and producer surplus when the demand or supply curves shift?

Both of them narrow, meaning that both of them miss out on profits and savings.

 

 

 

 

C.3) Exercise:

Draw the ideal market supply and demand curve with the equilibrium price and quantity identified. Indicate the consumer and producer surpluses on the diagram. Explain what it all means.