Sustainable Economics

• neoclassical
  • study of economy-environment interaction is an optional extra
  • prioritize individual preferences and consumer sovereignty
  • efficiency is central
• ecological
  • study of economy-environment interaction is fundamental
  • proritize individual and social health
  • sustainability is central 
• both assume rationality and are anthropogenic, aim to maximize utility of homo oeconomicus 

• perfect: products are homogenous,
  • Buyers and sellers are numerous
  • Have no influence on price,
  • Perfect information
  • Adjust quickly
• monopoolies: one seller controls price 
• oligopoly: few sellers 

amount of a good that buyers are able and willing to buy 

demand goes up if price goes down

demand goes down if price goes up

negative slope 

• saturation quantity: intercept with x axis
  • quantity demanded stops increasing bc additional utility of getting more of product decreases 
• reservation price: intercept with y axis 
  • price is too high so that no one has willingness or ability to pay 

• income
• prices of related goods
• tastes
• expectations
• number of buyers 

• normal good: increases w increase of income 
  • shift right
• inferior good: decreases w increase of income 
  • shift left 

• substitutes: fall of price of good 1 = decrease in demand of good 2
• complements: fall of price of good 1 = increase in demand of good 2

• measures how quantity demanded responds to a change in price 
• equation: % change in quantity demanded ÷ % change in price 
• determinants
  • availability of substitutes
  • definition of the market
  • necessities vs luxuries 
  • time horizon

• inelastic demand: quantity demanded doesn't respond strongly to price changes ( 0 < n < 1)
  • perfectly inelastic: n = 0 
• elastic demand: quantity demanded responds strongly to change in price (n > 1)
  • perfectly elastic: n -> infinity 
• unit elastic: quantity demanded changes by same % as change in price (n = 1)

• arc: elasticity btw 2 points on demand curve
• point: elasticity at specific point on demand curve 

amount paid by buyers and received by sellers for a good 

TR = price of good x quantity sold 

• inelastic demand: total revenue increases (lower demand offset by increase in price) 
• elastic demand: total revenue declines (less demand not compensated by price increase) 

measures how much quantity demanded responds to change in consumer's income 

% in change in quantity demanded ÷ % in chnage in income 

• normal goods: increase of quantity demanded (shift right)
• inferior goods: decrease in demand (shift left)
• necessities: income inelastic
• luxuries: income elastic 

• measures how quantity demanded of a good changes if price of another good changes 
• % change in quantity demanded of good 1 ÷ % change in price of good 2

• substitutes: positive correlation 
  • if price of one goes up, demand of the other goes up
• complements: negative correlation
  • if price of one goes up, demand of other goes down 

amount of a good that sellers are able and willing to sell 

the quantity supplied rises when the price of a good rises 

(positive slope) 

• input prices 
• technology
• expectations
• number of sellers 

• Equilibrium: situation in which price has reached level where quantity supplied equals quantity demanded 

• surplus: when price is higher than equilibrium price, the quantity supplied is higher than the quantity demanded 
  • suppliers lower price to go back to equilibrium
• shortage (excess demand): when price is lower than equilibrium price, the quantity demanded is higher than the quantity supplied 
  • suppliers raise price to go back to equilibrium 

• firms react fast (although they don't always have the choice to produce more or less) 
• works on local markets. international market: surplus can be exported, shortage imported
• demand has to be elastic 
• works w variable costs of production, dpeending on quantity produced (not only fixed costs)

the price of any good adjusts to bring the quantity supplied and the quantity demanded into balance 

1. decide whether event shifts demand or supply curve or both
2. decide whether curve shifts left or right
3. use supply and demand diagram to see how shift affects equilibrium price 

• shift in the curve: towards left or right -> change in supply or demand
• shift along the curve: curve is fixed, change in quantity supplied or demanded 

• above the E price: no effect 
• below the E price: risk of shortage 
  • cheaper good: more demand but less supply 

• below: no effect
• above: risk of surplus / oversupply 
  • demand decreases and supply increases 

• labor demand increases, labor supply decreases 
• risk of more unemployment (shortage) 
• proven wrong by studies
  • increase in income = increase in demand = increase in demand in other sectors 

way a tax burden is shared btw market participants 

depends on elasticity of demand and supply: the side which is more inelastic bears the most of the burden 

• demand goes down, shift to the left by the size of the tax 
• equilibrium quantity decreases, equilibrium price decreases

• decrease in supply, shift upwards (left) by the amount of the tax 
• equilibrium quantity decreases, equilibrium price increases 

the study of how allocation of resources affects well being

• maxmimum amount a buyer will pay for a good, how they value it 
• measures benefit that buyers receive from a good as they perceive it 
• reflected on the demand curve