EEP 1/Econ 3 Review 2015
S and D
Curve vs. quantity
Movements and shifts
Complements and substitutes
Ceiling and floor; shortage and surplus
Market and individual’s curves- horizontal addition for private goods
Elasticity
Consumer theory
Consumption bundle
Preferences
Budget line
Indifference curves
Slope down
Don’t cross
Moon shaped
Tangency of budget line and indifference curve
Normal and inferior goods
Derivation of demand curve
Stated and Revealed Preference
Use and Non-use value
Revealed preference
Averting
Hedonic
Travel cost
Stated Preference
Steps for a survey:
Its real money. 2. Background. 3. Project. 4. Payment Method.
5.Reasons to vote for and agin. 6.Question. 7. Debrief
Referendum “would you vote Y/N if it cost you $X” vs. Open ended.
Lying possible when open ended (how much…) Hypothetical bias
Problems of Scope (big and little project worth same.)
Conjoint analysis
Question that gets EV vs question that gets CV
WTP vs. WTA (pay and accept)
Production and the firm: the cost curve
Isoquant
Isoexpenditure or isocost
Chosen inputs
Derive cost curve
Isopleth, equal pollution lines.
TBES
Show how pollution charge gets right input bundle
TBES and Pollution charge differ in cost
Production: choosing Q
Opportunity cost
Economic v. business profit
Marginal cost
Area under mc is VC
C = fc + vc
AC is U shaped drawing and explanation
Supply curve: price taker
P = mc
mc above avc
Long and short run supply
Long run competitive Equilibrium
Profits are zero
P = mc
S=D
Case where polluter pays = consumer pays
How standard and tax lead to different long run Q
Welfare
Total Willingness to Pay
Consumer surplus
EV and CV
For a public and private good.
Competition maximizes profits plus surplus
Specific Tax
Incidence
Deadweight loss
Farm Programs
Loan program
Set aside
Output tax or quota to solve pollution
MC of pollute and total MC
DWL from doing nothing
Tax revenue and quota rents
Regulating Polluting input
MCA = MBA or MBemit = MCemit
DWL if wrong
(could be clean air services itself)
TBES defined
Tax and standard, compared
Cost difference
Effect on AC, hence of LR compet equilibrium
Pollution tax changes pollution/output and output
Public Good
TWTP
Why competition doesn’t max TWTP – all costs
Coase
MCA (Marginal cost of abatement)
Firm and Consumer MCA = Marginal Benefit of abatement
Two firm diagram: why trading good
Case where initial allocation doesn’t matter for pollution
What to do when transaction costs are high
Clean Air Act
Clean air act
NAAQS National goals
State plans
CA: Reclaim
New source TBES
Rules for cars, trucks etc TBES
National
CA exemption
Toxics
Acid Rain trading program
Clean water act
Goals by state (swimmable)
TDML
NPDES
Prior sewage treatment subsidy
Interest rate
Present value
PV = AV/r (starts one period out)
PV = FV*(1+r)-nt
Real = Nominal – inflation rate
Benefit Cost Analysis
benefits to whomever they accrue less the costs
when to rank projects by B/C rather than B-C
Green Accounting (covered but not on final 2015.)
GDP. Value of final goods made in a country
Leaves out work at home
Leaves out env. Goods like clean air
Includes intermediate goods like SCR’s
Net Domestic Product = GDP – Depreciation (capital
consumption)
Leaves out using up oil, gas etc
Trees are left out of both investment (their growing doesn’t
count) and depreciation.