The Self-Extinction Premise A society can germinate the seeds to
its own destruction. Malthusian view Pop. Growth cant keep up with
our use of Oil, fish, forests, fresh water, clean air Examples
Easter Island Reliance and overuse of trees led to downfall Mayan
civilization Pop. Growth > Food Supply Slide 2 Resources are
scarce, but we will find substitutes or innovation will lead to
more efficient use of the resource necessity is the mother of
invention Slide 3 1. History shows that when faced with scarcity,
societies always correctly adapt to solve the problem. 2. History
gives no clues as to whether societies correctly adapt to solve
problems of scarcity. 3. History shows that when faced with
scarcity, societies never adapt to solve the problem. Slide 4
Natural Resource resources that occur in a natural state and are
valuable for economic activity Exhaustible, Non-renewable resources
Resources that are fixed in amount of the resource which may be
used up over time. Examples include fossil fuels, minerals such as
iron, silver, and gold. Renewable resources Resources that can be
regenerated over time. Examples, Depletable A renewable resource
that can be exploited and depleted, such as soil and clean air.
Slide 5 1. Exhaustable 2. Depletable Slide 6 1. Exhaustable 2.
Depletable Slide 7 1. Exhaustable 2. Depletable Slide 8 1.
Exhaustable 2. Depletable Slide 9 Excludable Non-Excludable
Non-Rivalrous Rivalrous Club Goods Public Goods Common Goods
Private Goods Fish, hunting game, grazing land National defense,
lighthouses, clean air, information goods Food, clothing, toys,
cars Satellite television, Golf courses, Cinemas Slide 10 How much
rainforest do we really need? I want to maximize wealth and
societal welfare. In order to figure that out, I need to know how
many trees I should grow AND I need to know how much paper people
use. Slide 11 Marginal Analysis Tool used to answer questions of
how much?, by examining very small changes. Benefits > Cost
=> Do more Benefits Do less Examples, Valuing the Resources
Economic value of the a tree Anthropocentric view Direct value of
trees existence- can make a chair out of it Indirect value reducing
carbon dioxide in air, protecting the environment from global
warming, pretty and other like it Slide 12 Willingness to pay max
amount that we would spend on a good. Slide 13 Marginal Analysis
Tool used to answer questions of how much?, by examining very small
changes. Benefits > Cost => Do more Benefits Do less Slide 14
WTP for Paper stacks Quantity of paper stacks. p1 p2 q1q2 Slide 15
WTP for Paper stacks Quantity of paper stacks p1 p2 q1q2 Slide 16
The benefit lost when specific environmental services are forgone
in the conversion to the new use Slide 17 Price of Paper Stacks
Quantity of Paper Stacks p2 q1q2 p1 Slide 18 Price of Paper Stacks
Quantity of Paper Stacks p2 q1q2 p1 Slide 19 Price of Paper Stacks
Quantity of Paper Stacks p1 p2 q1q2q1q2 Slide 20 Price of Paper
Stacks Quantity of Paper Stacks p1 p2 q1q2q1q2 Slide 21 Price of
Paper Stacks Quantity of Paper Stacks Marginal Cost Marginal
Benefit Equilibrium Price Equilibrium Quantity Slide 22 First
Equimarginal Principle Net benefits are maximized when the marginal
benefits from an allocation equal the marginal costs Efficient Max.
Net Benefits Slide 23 One convenient way to express WTP between
price and quantity is through the inverse demand function. In an
inverse demand function, the price consumers are willing to pay is
expressed as a function of the quantity available for sale. Suppose
the inverse demand function of a product is P=80-q And the marginal
cost of producing the product is MC=1q A) How much would be
supplied in a static efficient allocation? B) What would be the
magnitude of the net benefits? Slide 24 Static Model Time does not
matter Cost/Benefit Analysis cutting down trees Benefit > Cost
=> support action Cost > Benefit => oppose action Dynamic
Model Account for time Cost/Benefit Analysis accounting for time
Max [B0, B1, B2] Present Value $1 invested today at 10% interested
yields $1.10 a year from now. Present Value (PV) of X one year from
now is X/(1+r) 2 r is the interest rate (discount rate)
PV[Bn]=Bn/(1+r) n PV[B0, B1, B2]= B0/(1+r) 4 + B1/(1+r) 3 +B2/(1+r)
2 Slide 25 Price of Good Quantity of Good Supply Demand Equilibrium
Price Equilibrium Quantity Slide 26 Exclusivity All benefits and
costs accrued as a result of owning and using the resources should
accrue to the owner, and only the owner, either directly or
indirectly by sale to others Transferbility All property rights
should be transferable from one owner to another in a voluntary
exchange Enforceability Property rights should be secure from
involuntary seizure or encroachment by others (ie. eminent domain)
Slide 27 Price of Good Quantity of Good Supply Demand Equilibrium
Price Equilibrium Quantity Slide 28 Price of Good Quantity of Good
Supply Demand Equilibrium Price Equilibrium Quantity Slide 29 Price
of Good Quantity of Good Supply Demand Equilibrium Price
Equilibrium Quantity Slide 30 Price of Good Quantity of Good Supply
Demand Equilibrium Price Equilibrium Quantity Slide 31 Homework #1
due