Econ 374 Definitions

Econ 374 Definitions - ExternalBenefits ,(outputtoosmall...

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External Benefits - Accrue to somebody other than the person making the decision that produces them - When external benefits are involved, market outcomes tend to be inefficient (output too small;  price too low) - Present whenever public goods are involved Intertemporal Efficiency - A situation that is efficient when not only the present year is taken into account, but all future  years as well - A state of affairs in which there is a maximum of net benefits (includes future consequences  flowing from today’s decision) - User costs must be added to marginal current costs thus q* is intertemporally efficient Coase theorem (Conditions) - Coase Theorem states that if trade in an externality is possible, and there are no transaction  costs, bargaining will lead to an efficient outcome regardless of initial allocation of property  rights. 1. Clear definition of property right 2. Zero transaction cost 3. Low number of parties involved Open Access Resources - Open access resources are a class of resources whose “use gives rise to external costs, and  proper management involves public goods and external benefits” - Market use leads to the complete dissipation of resource rents. - Because they are a public good and involve external benefits they are often over-utilized and  over-depleted User costs - ‘User Cost’ is the change in discounted future net benefits from using an additional unit of  resource in the current period.  - Intuitively the user cost is the discounted loss in future net benefits from using the resource  today. This loss occurs as using this resource today implies that it will not be available for use 
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This note was uploaded on 11/18/2011 for the course ECON 374 taught by Professor Sumeetgulati during the Winter '11 term at UBC.

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Econ 374 Definitions - ExternalBenefits ,(outputtoosmall...

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