AREC 250 midterm 2
Terms
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- Utility
- -the satisfaction people derive from their consumption activities
- marginal utility
- -the additional utility gained from consuming an additional unit of a good
- law of diminishing marginal utility
- -tendency for the additional utility gained from consuming an additional unit of a good to decrease as the total number of units consumed increases
- Rule for consumption of a single good
- -consume until marginal utility is negative
- consumption rule for multiple goods (rational spending rule)
- -spending should be allocate across goods so that the marginal utility per dollar is the same for each good
- market demand
- -the schedule telling us how many units will be purchased by a group of buyers at each price
- market demand curve is derived by...
- -horizontal addition
- consumer surplus
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-the most that buyers would willing to pay for the total quantity of a good minus what they actually have to pay
-the area under the demand curve and above the price - indirect benefits
- -benefits the environment provides through its role in the production of other goods
- direct benefits
- -benefits the environment provides directly to individuals
- use values
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-benefits derived from direct interaction with the environment
-recreation - non-use values
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-benefits derived without direct interaction with the environment
-peace of mind - market goods
- -goods that are traded in markets and therefore have observed prices and quantities
- non-market goods
- -good that are not traded in markets and therefore do not have observed prices and quantities
- valuation of market goods
- -derive demand curve from observed prices and quantities
- valuation of non-market goods
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-revealed preference approaches (behavior in markets)
-stated preferences approaches (hypothetical surveys) - contingent valuation method
- -asked to state their willingness to pay for a non-market good
- travel cost method
- -willingness to pay to visit recreational sites is based on observed travel expenditures
- hedonic price models
- -decomposes prices for market goods that embody non-market environmental goods
- perfectly competitive market
- -market in which no individual supplier has significant influence on the market price of the product
- law of diminishing returns
- -when some factors of production are fixed, increased production of the good eventually requires ever-larger increases in the variable factor
- fixed costs
- -costs that must be paid for at any level of output
- variable costs
- -the sum of all payments made to all variable factors of production (wages)
- marginal costs
- -change in total cost divided by the change in output
- average total costs
- -total cost divided by total output
- average variable cost
- -variable cost divided by total output
- profit maximization rule
- -output where price equals marginal cost
- supply curve
- -marginal cost is above average variable costs
- producer surplus
- -area above supply line and below price
- socially optimal quantity
- -equilibrium point of demand and supply curves