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CU-Boulder ECON 3535 - Natural Resource Paradox

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ECON 3535 1st Edition Lecture 5 Current LectureNatural Resource Paradox:Methods to Counter Resource Curse:1) government finances: saving in the boom, ameliorate the negative economic effects of the bust2) currency stability  less volatity = less trauma3) GDP growth  rapid growth in African countries without impediments4) Direct foreign investment  natural resources; more service-based industries instead of natural resource extraction-based industries5) Increase in manufacturing activitya. Increase in services as well  tourismb. Nigeria: formerly based on oil exports, however, now transitioning to finance, banking industriesi. 5.1% growth = manufacturing, constructionEnvironment as an Asset:- cost and benefit - ex: planetary resources  mining asteroids for metal and water o platinum and other metalso estimation of 2.6 billion in revenues by 2025Total Willingness to Pay- total willingness to pay: people who are willing to pay the market price or higher for a good or service- consumer demand curve- TC = total cost- Marginal cost = change in total cost / change in output- net benefits: subtract cost from total willingness to payo total benefit – cost - efficiency equimarginal principle  goal = maximize net benefitsThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.Present Value Calculation:- PV = RV/(1+r) to the power of n- FV = future value - r = interest rate (discount rate)- n = number of time periods in the future- ex: n=2Costs and Benefits:- stock = current supply (potential supply) (ex: forest)- flow = production from the stock (trees/day)Benefits:1) use value = market value2) option value = value placed on future use of the resource3) nonuse value = willingness to pay for resource preservation - total willingness to pay = total benefits of 1 + 2 + 3- valuation methods:o market priceo estimation  model and estimate coefficients ex: estimating local property valueso stated preference = future outcomes or possibilitiesCurrent Event: Government released the 4th quarter real GDP report today- 3rd quarter = 5% annual rate- 4th quarter = 2.6% annual rateo 2014: 2.4% o average growth 2010-2013 = 2.2% 1990s = 3.4%- It’s good that the growth rate has decreased because it allows the economy to avoid inflation, and the unemployment will still declineBenefits- revealed preference- stated preference  surveysCost- survey approach  survey of project- engineering approach  cost-based on current technology Property Rights- consumer surplus: willingness to pay versus the price actually paido difference between what consumers are willing to pay and the price paid- price discrimination: isolation of what you’re willing to pay and change it according to the situation to a higher priceProducer Surplus = difference between price and supply curve - total net benefit = consumer surplus + producer surplus- property rights = ownership- open access resources = no ownership; no restrictions on access- ex: park- can result in overuse  tragedy of the commons- public goods 


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