ECONOMICS AND THE
ENVIRONMENT
Handout #1
Graphs and Tables
Figure A-2.1: The Institutional Context Matters
Pursuit of
Self-Interest
Undesirable
Results
Commons
Desirable
Results
Pursuit of
Self-Interest
Property Rights
Table A-2.1: Private Property versus Open
Access
Results
Private Property
Open Access
1
Optimal Use
Overuse
2
Optimal Maintenance
No Maintenance
3
Long time Horizon
Short Time Horizon
Sustainable Use
Unsustainable Use
Conclude
Figure A-3-1.1a: An Increase in Demand-A Shift of
the Demand Curve
P
$120
$80
800
D0
Q
Figure A-3-1.2a: An Increase in the Quantity
Demanded-A Movement Along a Demand Curve
P
$120
D
Q
Figure A-3-1.3a: An Increase in the Supply -A
Shift in the Supply Curve
P
S0
$60
$20
$0
Q
800
(1) An Increase in Supply
(2) An Increase in the Quantity Supplied At Each Price
Figure A-3-1.4a: An Increase in the Quantity Supplied of
Paper-A Movement Along the Supply Curve
P
S
$20
Q
Figure A-3-1.5a: Markets for Substitutes A and B
P
P
S0
S0
P1
P0
D
D0
Q
Q0
Market for A
Q1
Market for B
Q
Figure A-3-1.6a: The Effect of a Subsidy on a Market
S0
P
$120
P0 = $70
$20
$00
D
Q0 = 1,000
Q
Figure A-3-1.7a: New and Recycled Paper
Markets
P
P
S1
S0
P1
P0
D1
D0
Q0
Recycled Paper Market
Q
Q1
New Paper Market
Q
Figure A-3-1.8: The Rationing Function of Markets
P
$120
S
$70
D
$20
1,000
Q
All consumers whose Demand Price exceeds $70 will obtain the good.
All producers whose Supply Price is less than $70 will produce the good.
Figure A-3-2.1 The Effect of a Negative
Externality on the Paper Market
P
SSOC
SPVT
$120
P1 = $80
P0 = $70
$40
D
$20
Q1 = 800 1,000 = Q0
QPAPER
Figure A-3-2.2 The Welfare Loss of a Negative
Externality
P
SSOC
SPVT
$120
$90
P1 = $80
P0 = $70
WL
$40
D
$20
Q1 = 800 1,000 = Q0
QPAPER
When P0 = $70 and Q0 = 1,000 occurs,
WL = ½(200)($90 - $70) = $2,000
Figure A-3-2.3: Effect of a Negative Externality
• A negative externality where producers do not take
account of the costs imposed on third parties results in
too much output in the market with the externality and
too little output in the Rest of Economy
Producer Externality
Rest of Economy
Resources
(Lower Valued
Use)
Output Decrease
Market
Output Increase
Table A-3-3.1: Illustrating the Coase Theorem
• Assume the following:
– D = Damages to the Farmer’s Crops from the Water Pollution produced by
the Paper Mill
– CPM = Costs to the Paper Mill to Install Pollution Control Equipment
– CF = Costs to the Farmer of Cleaning the Water Used for Irrigation (Filters,
Chemicals)
– D = $20,000 CPM = $50,000 CF = $10,000
Farmer (F)
Paper
Mill
(PM)
Do
Nothing
Clean
the Water
Do
Nothing
(1) F = $30,000
PM = $200,000
(3) F =
PM =
Clean
the Water
(2) F =
PM =
Note: All numbers in Table 3-3.1 represent profits.
Figure A-3-4.1: Central Planning Hierarchy
•
Politburo
Council of Ministers
GOSPLAN
Output Quotas
Input Information
Industrial Ministries
Output Quotas
Input Information
State-Owned Enterprises (SOEs)