AEM
Env Econ Final Review Guide

# Env Econ Final Review Guide - Prelim 1 Review Economics The...

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Prelim 1 Review Economics: The study of how people and society allocate scarce resources Traditional/Env/Neo Econ vs Ecologic Based Policy Efficiency! Scale! Markets solve everything! We must preserve! Ecological vs. Traditional Econ in policy Differences between ecol vs. traditional perspective; how they rank: scale, efficiency, equity Ecological: scale (preservation, > Traditional/Envi: efficiency (how do we get the biggest benefit) > Externalities are an effect of a market transaction on individuals or firms other than those involved in the transaction Positive externalities shift Supply rightward, negative leftward All of our graphs are MB and MC (get marginal values) To select the tax, set MNB=0 ergo, tax should be set at where MB intersects MC Coase required clearly defined property rights and bargaining Public Goods= Rival (one’s consumption reduces some1 elses) , Exclusive (ppl can prevent others from using it) Graphing: When there’s a kink, it is where one function’s price zero’s off , the Agg D curve should resemble the other curve (go on top of actually), make sure equations are in P= format, (add leftward) Private Goods = Non-Rival, Non-Exclusive

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Graphing : Make sure equation is in Q= format, Kink will occur where Q=0 (function hasn’t started when going down Price axis), (Add rightward) To respond to taxes to find optimal Q production : use Agg equation if before Kink, or copied function if after king (and vice versa for private goods) Nash Equilibrium: Dominant Strategy Pick Country A to do an action, analyze what other country (Country B) will do in response, then make Country A do the other action, if Country B still does the same action as it did before it is a dominant strategy, then switch to find dominant strategy for Country A. Nash Equilibrium: Start at a box, analyze how Country B would respond to Country A in that box, then how Country A would respond to Country B’s change, etc. until you land in a box that neither Countries would deviate from Pareto Criterion: Society should only adopt projects that make at least one person better off and no one worse off What is the point in society in which if we produce one more unit it will hurt someone else? Compensation Principle= Can the “winners” (gainers) compensate the “losers” and still profit?
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