1.Thomas Malthus - consumption is increasing, while food production is the same.

2.As demand shifts, quatity demanded goes up, prices go up

3. 3 ways to increase profit - higher price, more production, lower cost

If there is a negative externality, set up taxes that covers what the company isnt internalizing. If positive externality, tax the people receiving the spillover and give the companies subsidies. 

A problem: Cant measure utility so you dont know who to tax.

scarcity value of goods.

signaled by price

The total utils one gets. Can't be measured.

a third part is negatively affected by another parties action

pollution,smog.

causes too much production. and no one internalizes the cost to remove pollution. causes dead weight loss.

poorly defined and unenforced property rights

solutions: taxes, property rights, government regulation

Rent-seeking

Regulations- create dead weight loss

if government control is there they have incentives to increase benefits.

when there is no strict property rights. and open access land, people have used them over excessively, diminishing the source. people look in self-interest. 

Commons: Not public goods because they are rivalrous.

Natural resources as inputs

Waste as outputs

some recycling

People do things on self interest and have own incentives. The agent does things not in the best interest of the principle. 

ex. government having own incentives.

Solution - licencing.

Producer cant fully INTERNALIZE the full benefits which causes under production to no production.

Benefits for a third party.

downside - free-riders, which causes low production and dead wieght loss.

improve some people's utility, while hurting others for a net social benefit.

ex. rich give to poor

Problem: cant determine individual's utility, it is subjective, 3rd party is evaluating if more efficient to re-distribute money by private choice than force. Govt redstribution.

Has close subsitutes.

is very sensitive to price changes

EX. butter and margarine - very elastic, because substitutes of each other

incentive matter- setting incentives causes a behavior

institution matter- structure and rules- what can and cannot do

Exchange where one person is better off and no one is worse off. 

Ex: Slaves can't be better off without hurting the slave owners. 

maximizing utility without reducing anyone elses utility, through free exchange and specialization.

Problem: 1. Difficult to evaluate utility.

        2. Hard to show efficiency

1. exponential population growth with fixed resources

2. climate change

3. pollution resources

rational ignorance - cost to get infor to be informed outweighs the benefits

rent-seeking - the money that has no benefit to production, but is used for influence

1. asynchronous information

2. monopolies - oligopolies

3. externalities - positive and negative

4. principle agent problem

5. public goods

non-excludable (cant stop people from using it), non-rivalrous (doesnt take away from another's use), indivisable, non enforceable.

Problem: Free rider. 

solution: They use taxes on those who benefit from the publics good, whether you want it or not.

good which has a replacement

most things have substitutes, those that dont are taxed

ex. alcohol cigarettes

GIS (Geographic Information Systems)

once you own something, you want to keep it and not sell it, willingness to accept.

Respondents will always over value something they already own. You will get higher answers when using WTA.

one party has more info than another in an exchange, and they use it to their advantage. 

Solutions: research, ask other consumers,

education for consumer

regulations - ex. FDA

provide information to consumers - Nutrition label

Have patents - no one can manufacture certain good

ex. post office - only mail service.

 Oligopolies - cartels, OPEC

hedonic pricing, regression will show each factor, housing characteristic, neighborhood, quality to determine price.

Problem: omitted variables, too many variables, Multicollinearity(perfect correlation, means nothing), functional form- linear vs. non linear- independent = nonlinear.

Market segmentation right?

The better option. Based on actions. Assume costs related to the action. They are observable and indirect.

Includes: Travel costs and hedonic pricing.

The producer doesnt fully INTERNALIZE full benefit which causes under production to no production.

1. Given low to no transaction cost.

2. Allocate property rights.

3. Well defined and enforced property rights.

Can solve problems.

The two parties negotiate for the lowest costing option.

1. free exchange

2. transfer to government for redistribution

3. if market failure - dont get govt help, find solutions based on incentives.

buy something at a low price and sell in another area at a higher price because it is the only place to get it.

 factor of monopolies.

(Population * wtp)/(population * risk) = Value of Human Life

No universal value of life. 

necessary to consider opportunity cost. many companies use this for trade-offs

maximizing the present value of net socal benefit across time periods.

Problems: breaking incentives, cant calculate utility and innovation, dont know that discount rate will really be, dont know if substitutes will be used instead.

Cost to get info is more expensive than the benefits it gives. 

Ex: Voting

Try to get you to do one thing but cause them to do something else. 

Ex: Cash for clunkers. Ended up hurting the environment and gave more money to sales people.

Ex: FDA. Drugs take longer to get to market. Deny a drug that might be effective and a lot of rent seeking. People will go in self-interest. 

cant be supported through empirical data

Make judgement call. Ex: Which is better?

1. well define and enforced property right.

2. rational individuals pursuing their self-interest

3. low transaction - stable common medium of exchange, symmertical and complete info, low search cost

Accumulates non degradable.

Ex: Plastics and heavy metals.

enforced laws, property right, free exchange.

stated vs. revealed preferences

Coasian Solution.

Pollution credits.

Setting standards- Encourages innovation.

What people say to give it a value. How much people are WTP. 

Problem: It can be overstated because won't have to actually pay. Hypothetical.

Im-mobile sources of pollution.

Ex: Factories and plants. 

based on housing, take difference in housing price to determine the price of a certain location or park.

uses property and wage valuations as well as human life.

Problem: cant see all factors to have a good comparison

how much people will drive to come to a certain location

costs include - mileage, time(labor vs. leisure), opportunity cost-rating characteristic

Problem: might be there for other destinations so cant account for travel.

• Wal-mart opens and four businesses shut down.

• There is a net social gain. 

Increases consumer and producer surplus.

Not a market failure.

Contingent Valuation

Challenges?

Survey to determine Willingness To Pay (WTP) or Willingness to Accept (WTA)

Challenges: hypothetical question, strategic bias, information bias, starting point bias, endowment effect.

indirect revealed preference.

Pollution caused by mobile things (cars). 

Taxes

Regulations

Subsidies

Bans