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Unformatted text preview: ECON 225 Exam Study Notes: The goal of economics is to maximize social welfare Microeconomics: specific, at the individual/firm level Macroeconomics: general, at the regional/national level Positive statements: fact what is i.e. it is 10 degrees Celsius outside Normative statements: opinions what ought to be i.e. it is too cold outside Economics is based on positive statements, not normative ones Incentive: anything that gives a motive for a particular course of action, a reason why you would prefer one thing over something else Firms maximize profit People maximize personal welfare Governments maximize social (society includes firms and people) welfare Costs are easy to measure, benefits are very difficult to measure Costs: making, implementing and monitoring legislation, cost of cleaning, cost of implementing new technology (replacing machines, training workers, etc.) Some benefits cannot be given a market value Spreading of pollution: Suburban sprawl: clustering of suburbs around cities Suburbanization is very common in industrialized countries Uses agricultural lands, creates road congestion, people travel further distances to go to work The economy has two activities: production and consumption Resources are taken from the earth They are used and processed in production to create consumable goods Nature -> inputs -> economy -> residuals -> nature Natural resource economics: the study of the use of natural resources Environmental economics: study of residuals on natural resources 2 types of resources: Renewable: living resources, replenish at a certain rate, rates differ depending on the stock of population, it may break down after a certain threshold Non-renewable: dont grow back or replenish in practical terms (oil, minerals, etc.) Sustainability occurs if exploitation is less than or equal to the replenishing rate Models: Good to simplify the world and understand relationships between things Allows for less calculation time: you need less information for policies, it is more practical M(what you take from nature) = G(goods produced) + Rp (residuals from production and consumption) Rrc (recycled residuals from production and consumption) There are three medias that can be polluted (air, land and water) Cumulative pollution: adds up over time and does not go away easily i.e. mercury and plastic Non-cumulative pollution: degrades easily, goes away over time, not as harmful to environment i.e. banana peels, sound pollution Pollution may be local or regional Generally, the more you produce in the economy, the quality of the environment decreases The more you produce, the more the PPC of goods vs. Environmental quality decreases If you are on the PPC, you are 100% efficient Minimum demand: the lowest you can create in order for people to be able to live...
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