Podcast
Questions and Answers
What happens to the fish stock when it is left undisturbed and is greater than OA?
What happens to the fish stock when it is left undisturbed and is greater than OA?
What is the relationship between the marginal social cost curve and fishing output?
What is the relationship between the marginal social cost curve and fishing output?
What is the maximum sustainable amount that can be harvested from the fish stock without reducing it?
What is the maximum sustainable amount that can be harvested from the fish stock without reducing it?
When the fish stock is less than OA, what is the expected outcome?
When the fish stock is less than OA, what is the expected outcome?
Signup and view all the answers
What impact does overfishing have on fish stock management?
What impact does overfishing have on fish stock management?
Signup and view all the answers
What happens to the stock of fish when the annual harvest exceeds the maximum sustainable yield?
What happens to the stock of fish when the annual harvest exceeds the maximum sustainable yield?
Signup and view all the answers
How does the introduction of subsidies for fishermen affect the marginal social cost?
How does the introduction of subsidies for fishermen affect the marginal social cost?
Signup and view all the answers
What is the equilibrium price and quantity of fish in the market under perfect competition, according to the information provided?
What is the equilibrium price and quantity of fish in the market under perfect competition, according to the information provided?
Signup and view all the answers
What effect did the increase in fishermen and boats have on the fish stock?
What effect did the increase in fishermen and boats have on the fish stock?
Signup and view all the answers
What defines the tragedy of the commons in the fishing industry context?
What defines the tragedy of the commons in the fishing industry context?
Signup and view all the answers
What is the ultimate consequence of constantly harvesting more than the sustainable yield?
What is the ultimate consequence of constantly harvesting more than the sustainable yield?
Signup and view all the answers
What happens to the economic profit in a competitive market as more fisherpersons enter the industry?
What happens to the economic profit in a competitive market as more fisherpersons enter the industry?
Signup and view all the answers
How does the marginal private cost curve change as fish stock decreases?
How does the marginal private cost curve change as fish stock decreases?
Signup and view all the answers
What happens to fish stocks in a perfect competition market without management?
What happens to fish stocks in a perfect competition market without management?
Signup and view all the answers
What is one proposed method to sustainably manage fish stocks?
What is one proposed method to sustainably manage fish stocks?
Signup and view all the answers
How can the government ensure fishing activities remain sustainable?
How can the government ensure fishing activities remain sustainable?
Signup and view all the answers
What is the impact of overfishing on fish stocks?
What is the impact of overfishing on fish stocks?
Signup and view all the answers
What is meant by 'maximum sustainable yield' in the context of fishing?
What is meant by 'maximum sustainable yield' in the context of fishing?
Signup and view all the answers
Which of the following describes the marginal social benefit in the context of fishing management?
Which of the following describes the marginal social benefit in the context of fishing management?
Signup and view all the answers
How does the demand curve affect fishing licenses over time?
How does the demand curve affect fishing licenses over time?
Signup and view all the answers
What could be a consequence of ignoring the sustainable yield of fish stocks?
What could be a consequence of ignoring the sustainable yield of fish stocks?
Signup and view all the answers
Study Notes
Non-Renewable Resources
- Two types of natural resources exist: renewable and non-renewable
- Non-renewable resources, like oil, cannot be reproduced after the resource is depleted
- Renewable resources, such as forests, water, and fish, can be replenished but at a cost.
Oil as a Non-Renewable Resource
- Oil is a non-renewable resource
- Oil's supply decreases as it's consumed
- Price changes reflect the decrease in reserves unless a substitute or more reserves are found.
- Marginal cost of extracting oil is small compared to its price.
- The oil industry operates like an oligopoly (or operates in a way that looks like a monopoly)
Oil Price Determination
- Expected price increase is equivalent to oil's foregone interest rate.
- Percentage rise in oil price = (Expected Price Rise - Price of Last Year) / Price of Last Year
- The interest rate and the percentage rise in oil price are equal.
- Actual oil price deviations occur due to new reserve discoveries or political instability.
- Consumers reduce consumption as oil prices rise through efficient use (e.g., smaller cars).
The Commons Problem
- Commons are resources without an owner (e.g., air, wild fish, grazing land)
- Overuse of a common resource by its users often leads to depletion with users ignoring the consequences to others.
Efficient Allocation of Resources
- A benevolent dictator allocates resources to maximize total net social benefit by equating social benefit with social cost.
- The optimal number of cows to graze on common land that maximizes social welfare is 35.
Perfect Competition and Free Entry
- In perfect competition markets, there is no incentive for additional entrants or exits.
- Equilibrium profit is zero for economic profitability
- When a market is in long-run equilibrium under perfect competition, there is no incentive to enter or exit even when there is free entry.
- In a perfectly competitive market, marginal private revenue and marginal social benefit are equal to each other.
- Individuals in communities and markets driven by their self-interest will not likely lead to the optimal outcome.
- Government intervention to allow a free market in the provision of goods and services is required to maximize the common good.
Implications for Economic Policy
- Free entry leads to overgrazing and social loss
- Solutions to limit overgrazing include:
- Government ownership and charging for resource use (e.g., a license fee).
- Government regulation to restrict entry.
- The price of a license reflects the value of a common resource (e.g., grazing land, fish).
Renewable Resources: Fish
- Fish is a renewable resource
- Its growth depends on stock size
- Net growth is births minus deaths
- Sustainable yield is the maximum rate of harvest to keep the stock at a steady state.
- Beyond the sustainable yield, net growth is negative, stock declines, and risk of extinction occurs.
- Optimal harvest = Sustainable yield
- Social cost = private cost
- When there is perfect competition the fishing market leaves a low level of resources for future generations.
Efficient Allocation of Resources
- Efficient allocation maximizes total net social benefit by equalizing marginal social benefits to marginal social costs.
- Policies to ensure the efficient allocation of resources can include taxes, quotas, or permits.
Perfect Competition and Overfishing
- In a perfectly competitive market for fish, free entry and no restrictions on private marginal cost drive fish stocks towards extinction.
- The resulting equilibrium for perfect competition is inefficient (zero economic profit).
- No one wants to pay more for a license and the outcome is a depletion of the stock.
Policy Solutions
- Imposing a tax proportional to fish harvests restores efficiency.
- Create a system of licenses for individuals and companies to reduce overfishing.
- The optimal harvest maximizes sustainable economic profits for all.
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
Related Documents
Description
Explore the concepts surrounding non-renewable resources, focusing primarily on oil. This quiz covers the differences between renewable and non-renewable resources, the economics of oil supply and price determination, and the industry's market structure. Test your understanding of these critical environmental and economic principles.
