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Forest Economics

FOR330 - University of Montana Study Guide (Midterm Part 2)

Define and give an example of an open access resource. An open access resource is a resource that is something that is not owned by a single entity but rather is a publicly owned good that can be used by many people. It is rivalrous but non-excludeable. A sporting event is concidered open access.
Do you think externalities associated with open access resources are generally positive or negative? Why? Open access resource externalities are generally negative, because they generally lead to over exploitation (like the American bison.)
Explain the competitive free market equilibrium if there were private property rights to open access resources. The equilibrium point Q* would be the point at which profit and social welfare are maximized.
How and why does the equilibrium quantity and economic profit level differ under conditions of open access? Open access differs from a competitive market because users do not have an incentive to quit taking/using the natural resource and will do so only until their average costs are higher than their average benifits.
Explain how marketable pollution permits can minimize total abatement costs for a polluting industry. MPPs equate MACs accross all polluters because each polluter compares their MAC with the market value of pollution permits in deciding whether to reduce (increase) pollution by one unit and sell (buy) another permit. Polluters with high MACs will buy poll
Explain whether initial allocation of permits among polluters affects revenues and costs for individual polluting firms. The initial allocation of pollution permits greatly enhances the bottom line of firms. It will determine who will be buying and selling these permits.
Explain whether the initial allocation of permits among polluters matters for overall economic efficiency of pollution abatement. The initial allocation of pollution permits does not matter. This is because no matter how they are allocated between polluters the social costs of pollution will always equal the costs of cleaning up one more unit of pollution.
Created by: JGILL40167