Econ&Finance Test 1, Mod 5

When resources are not allocated effectively or efficiently.

Market Failure (ie deforestation or overfishing... Common Property often causes Market Failure)

What is Common Property?

Natural resources owned and managed collectively by a community or society. •Often causes market failure •If it is too costly or technically impossible to deny open access (exclusionary), market allocation is likely to be inefficient. •Leads to Tragedy of the Commons

Why are Property Rights important for sustainability?

Prevents fights over rights to resources

Well-defined property rights for assets are crucial for market success. Defines owners' rights and responsibilities

Property Rights

What is the Invisible Hand?

Self-regulation of the market

The socially optimal level of pollution is when... ?

society balances the extra gains with the extra costs (B=C)

What are the 3 incentives of Property Rights?

-To maximize resources -To conserve resources -To improve and preserve a resource

An institution that facilitates the buying, selling and trading of goods and services, together with information about those goods and services. Always includes price

A Market

What is Abiotic and Biotic?

Abiotic is physical, rather than biological (not derived from any type of organism). Biotic is biologic, resulting from a living thing, especially in regard to ecological relationships

List the 4 characteristics of Property Rights:

Comprehensively assigned (Who owns what, private or collective, must include all assets) Exclusive (For privately or collectively owned resources, all benefits and costs must accrue to the owner) Transferable (All property rights must be transferable to one owner to another) Secure (Property rights must be secure from involuntary seizure)

The use of resources that maximizes the production of goods and services is defined as _________ .

Economic Efficiency

What is Tragedy of the Commons?

Individuals acting in their own self-interest ultimately deplete shared or limited resources even when they know it's against their own best interest to do so. If everybody owns something, NO ONE owns it.

What is the Prisoner's Dilemma?

It is better to cooperate, but that requires some level of trust. Are you prepared to give that level of trust?

What is the socially optimal level of pollution (M5 Slide 16)? ***look into

When B = C - when society balances the extra gains with the extra costs (when marginal Benefit - marginal Cost). This is ALWAYS the case, regardless of property rights, compensation or bribe. (This is an example of the Compensation Principle)

What is Externalities?

•Classic case of market failure •When one person's actions affect other people, who neither receive compensation for harm done nor pay for benefit gained. •Or, a cost or benefit incurred by a party who did not agree to the action causing the cost or benefit. •Can be positive or negative (usually negative).

What is Excludability and Non-Excludable?

•Excludability -When one can prevent the consumption of a good or service by those who have not paid •Non-excludable -Non-paying people still have access to that good.

What are Private, Common and Public Goods with regard to Rivalrous, Excludable and Non-Excludabe?

•Private Goods -Rivalrous and excludable -Cars, clothing, cellphones, etc. •Common Goods -Rivalrous and non-excludable -Timber, pasture lands, fish stocks •Public Goods -Non-rivalrousand non-excludable -Air, flood control, climate change mitigation

What is Rivalry and Non-Rivalry?

•Rivalrous -Consumption by any one person prevents the simultaneous consumption by another •Non-rivalry -One person's consumption does not decrease the level that can be consumed by another