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What is economics? The study of scarcity, incentives, and choices. The branch of knowledge concerned with the production, consumption, and transfer of wealth. (google) Wealth The health, happiness, and fortunes of a person or group. (google) Economics Models Simplified characterizations of reality that help to highlight and understand the main concepts Examples Optimization (Profit Max., Utility Max.) Market Equilibrium Marginal Cost/Marginal Benefit Analysis

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Quantity of Good Y Quantity of Good X Budget Constraint Equilibrium Quantity of Good X Equilibrium Quantity of Good Y Indifference Curves

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Price of Good Quantity of Good

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Price of Good Y Quantity of Good Y Shut Down Price Average Cost Marginal Cost P* Q*

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Price of Good Y Quantity of Good Y Shut Down Price Average Cost Marginal Cost/Supply

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Price of Good Quantity of Good

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Price of Good Quantity of Good Supply Demand Equilibrium Price Equilibrium Quantity

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Max. Utility Max. Profit Min. Cost Max. Welfare Min. Cost of Abatement Min. Cost of Control How much should you study for this class?

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Marginal Cost/ Marginal Benefit Time spent studying Marginal Cost Marginal Benefit Equilibrium Time spent studying 1 hr 2 hr

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Other fields of economics Health economics Financial economics International trade Industrial organization Behavioral economics What is environmental and natural resource economics? Environmental Economics The branch of knowledge concerned with how the production, consumption, and transfer of wealth affects the environment and consequently wealth. Natural Resource Economics- The branch of knowledge concerned with how natural resource use affects the production, consumption, and transfer of wealth.

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How do markets fail? What can we when markets fail? How can efficiency in markets be improved?

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Negative Externalities - is an action of a product on consumers that imposes a negative side effect on a third party. Examples,

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Price of Good Quantity of Good Supply Demand Equilibrium Price Equilibrium Quantity

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What is the optimal use of a resource? Applications Fisheries (optimal catch-rate) Forests (optimal harvest) Renewable vs. Depletable (defining) Depletable Resources (optimal extraction) When to transition from depletable to renewable Recycling vs. Waste Disposal (optimal waste)

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How do we value the environment? What is value? How we measure our value of the environment?

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Why study natural resource and environmental economics? All the questions in the syllabus OR The Self-Extinction Premise A society can germinate the seeds to its own destruction. Examples Easter Island Reliance and overuse of trees led to downfall Mayan civilization Pop. Growth > Food Supply

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Malthusian view Pop. Growth cant keep up with our use of Oil, fish, forests, fresh water, clean air Resources are scarce, but we will find substitutes or innovation will lead to more efficient use of the resource necessity is the mother of invention

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Ways to address this premise Use economic models to understand scarcity of natural resources, the incentives of the people using and needing that resource, the choices of individuals. The models can inform public policies regarding the environment. Supply, Demand, and the Market (Price Controls, Quotas) Cost/Benefit Analysis (social vs. private) Dynamic Optimization (Optimal Allocation of Resource use over time: Dams, Fisheries, Forests)

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Common Goods rivalrous, non- excludable Public Goods non-rivalrous, non- excludable

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Natural Resource resources that occur in a natural state and are valuable for economic activity Exhaustible, Non-renewable resources Resources that are fixed in amount of the resource which may be used up over time. Examples include fossil fuels, minerals such as iron, silver, and gold. Renewable resources Resources that can be regenerated over time. Examples, Depletable A renewable resource that can be exploited and depleted, such as soil and clean air.

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Resource Stock Resources that are fixed in amount Resource Flows Resources that do not exist as a stock, are not regenerative, provide a never ending flow of services. Examples,