Review for Quiz 1 Peter Berck 2011 Env. Econ. 1

Supply and Demand demand vs. quantity demanded supply vs. quantity supplied movements along vs. shifts of S & D price ceiling, price floor economic shortage/surplus market & individuals' demand curves horizontal summation specific tax tax incidence elasticity of demand and supply complementary vs. substitute goods normal and inferior goods

Tax example P s = 0.25 Q P d = 3 –.4 Q t=.6 D -1 (Q) – t = S -1 (Q)

Tax Incidence Flat and vertical supply curve

Loan rate QLQL QDQD Gov’t Purchases PLPL Demand Supply ?treasury outlay

Consumer Theory consumption bundle preferences budget line indifference curve properties of indiff. curves –slope down –don't cross –"moon" shaped tangency of budget line & indiff curve normal vs. inferior goods derivation of demand curves

Demand Curve Price of Wine is 8

Normal & Inferior Again What happens to q demanded with increased income?

Sale 10 at normal price of 5 and then rest at half price of 2.5. Price of other good is 1 and income is 100

Pareto Improvement When at least one party to a deal is made better off and no parties are made worse off the deal is said to be Pareto improving. Examples of market trades that are pareto improving Examples of market trades that are NOT pareto improving

What Goes Wrong With Markets Reasons for –No ownership –Externalities –Public Goods –Insufficient weight on future –Government Failure Give examples of each

Surplus Total Willingness to Pay Amount Paid Consumer Surplus Surplus from a public good

EV/CV/WTP/WTA Define EV and CV for a price change. What is Willingness to Pay and Willingness to Accept (they are forms of a question to elicit a value) Give examples of how WTP or WTA can elicit CV and EV

Revealed Preference What is revealed vs. state preference? Use v. non use value Which methods work for use? For nonuse? “arm chair environmentalist” (this takes us to page 113 of BH, as far as we go for 2011 quiz one.)