Introduction to Agricultural & Resource Economics
Introduction to Agricultural & Resource Economics ARE 201
Popular in Course
Popular in Agricultural & Resource Econ
This 9 page Class Notes was uploaded by Norbert Terry on Thursday October 15, 2015. The Class Notes belongs to ARE 201 at North Carolina State University taught by Staff in Fall. Since its upload, it has received 23 views. For similar materials see /class/223767/are-201-north-carolina-state-university in Agricultural & Resource Econ at North Carolina State University.
Reviews for Introduction to Agricultural & Resource Economics
Report this Material
What is Karma?
Karma is the currency of StudySoup.
Date Created: 10/15/15
What s the difference between Lighthouses Jolly Ranchers Nonrival Goods One person consuming does not diminish value to others Excludable Goods Easy to exclude people from consuming good 1132008 Rival Goods If one person consumes no other can consume Public Goods Consumption is rival Private good Consumption is nonrival Public good Nonexcludable Goods Hard to exclude others from consuming good Public Goods Consumption is excludable Private good Consumption is nonexcludable Public good Socially optimal output for private good P M0 That is Willingness of one person to pay for an extra unit Cost of an extra unit Example Parkland in Raleigh Willingness to pay for an extra acre Michael Roberts 10 Wally Thurman 15 Mitch Renkow 13 Total 585000 Should buy an atra acre if it costs 585000 or less Pay for acre by charging each person theirWTP 1132008 Mixed Goods Grey area Neither public nor private Examples Education Roads Parks Socially optimal output for a public good Let Pi denote the amount that person i is willing to pay for an extra uni XEMC That is The amount that all people are willing to pay in combination for an extra uni cost of an extra unit Problem People will not reveal their willingness to pay Each person correctly knows that hisher contribution will not affect the outcome Example report willingness to pay of0 Total willingness to pay of all people combined declines by 10 l gure land will be bought anyway and I will not have to contribute What about user fees People whose WTPltF will not use public good gt Welfare loss Revenues will be less than total WTP No revenue from people with WTPltF Revenue of F from people with WTPgtF Popular Conclusion Too few public goods are provided Michael Roberts 10 Wally Thurman 15 Mitch Renkow 13 Total 38 Suppose land costs 36 Ballot proposition We will tax each person 12 and use revenues to buy land Proposition PASSES 21 1132008 Parkland in Raleigh Willingness to pay for an extra acre Michael Roberts 10 Wally Thurman 15 Mitch Renkow 13 Total 585000 Any user fee will obtain less than 585000 Actual way public goods are provided Ballot propositions Michael Roberts 10 Wally Thurman 17 Mitch Renkow 11 Total 38 Suppose land costs 36 Ballot proposition We will tax each person 12 and use revenues to buy land Proposition FAILS 21 Suppose Total WTP gt Cost such that public good is socially beneficial Ballot proposition will pass as long as Median WTP Average WTP Proof Total WTP gt Total Cost Average WTP gt Average Cost Median WTP gt Average cost 50 Median person will vote YES Median Average wtp wlp Optimal quantity will fail ballot Conclusion Markets provide too few public goods Communities usually working through government may provide more public goods Communitygovernment provision will be imperfect 1132008 Average wtp Median wtp Optimal quantity will pass ballot Average Median wtp wtp More than optimal quantity will pass ballot Money What is money Three things a Worthless paper b Use it to buy stuff 0 Get it for selling stuff If not about to buy stuff no good reason to keep it Money is a medium of exchange Today distinction is less clear Interest is paid on fully liquid funds There is a continuum of liquidity Interest rate is higher for less liquid funds Consider the interest ratequot to be the premium received for lower liquidity 11192008 Money Supply and Demand determines Interest Rate Monetary Policy Government manipulating supply of money to affect interest rate What is money Choice Hold funds yourself so you can use them whenever you want Liquid assestsquot Money Give funds to someone else for them to use for a period of time Nonliquid assets Interest rate Amount that person receives for allowing another person 0 use hisher assets for a period of time Today distinction is less clear Interest is paid on fully liquid funds There is a continuum of liquidity Interest rate is higher for less liquid funds Consider the interest rate to be the premium received for lower liquidity Why do people hold money Transactions Speculation Shifts in Demand Curve for Money Yrises gt M risesi Supply of Money At any point in time supply of money is xed MS r 11192008 Demand Curve for Money Quantity of money demanded depends on interest rate r 3 Prices rises M rises Md1 Md1 M Equilibrium interest rate r MS I Md M Movement toward equilibrium Ms Effect of shifts in supply Ms rises gt r drops r M51 M52 gt quot1 r2 Md M Ways the Fed can increase Ms 1 Lower the required reserve ratio Required reserve ratio Portion of deposits that bank must hold in deposit at Fed Lower required reserve ratio gt Less money held in Fed gt More money in circulation 11192008 Effect of shifts in demand Md rises r rises r Ms E r1 Mdz Md1 M Monetary Policy Manipulation of Ms to affect r The Federal Reserve Bank The Banks Bank Effect of shifts in supply Ms rises r drops r M51 M52 r1 r2 Md M 11192008 Effect of shifts in supply 2 Lower the discount rate Ms rises r drops Discount rate r M51 M52 Rate at which banks can gt borrow from Fed Lower discount rate 39quot1 Banks borrow more r gt More money in circulation Md M 3 Purchase government securities Fed buys a security G Vemmem security Fed buys back a previously Loan to government from citizen 50 IOU Fed QiVeS money to citizen Citizen gives IOU to Fed Fed quotsellsquot a security Citizen gives money to Fed Fed gives IOU to citizen Decreases money in Increases money in circulation circulation Recently the Fed has been buying a lot of IOU s 5mm Reselve nial 17mm sum Reserve ma Effect of shifts in supply Ms rises gt r drops s s m r M 1 M 2 i 55 1 3 r1 a gm r2 g WId m quot y W We fwfaf f M m sfaf fw fv v Jug y a 11192008 Thmyddy columcmml paper dmly pcmcm 7 AAwmmmm Auwummm 1 Arm19 Us 1 1 1 1 1 1 1 1 1 111 1 200i 200 2003 2004 2005 2006 2007 2008