Question

we talked earlier about measuring demand curves. how might we proceed if we want to measure congestion Externalities associated with various outdoor recreation activities?

Answer 1

• Economic production can cause environmental damage. This tradeoff arises for all countries, whether high-income or low-income, and whether their economies are market-oriented or command-oriented.

• An externality, sometimes called a spillover, occurs when an exchange between a buyer and seller has an impact on a third party who is not part of the exchange. Externalities can be positive or negative.

• Market failure is when the market does not allocate resources on its own efficiently in a way that balances social costs and benefits; externalities are one example of a market failure.

• Social costs are costs that include both the private costs incurred by firms and also additional external costs incurred by third parties outside the production process.

• Economic production can cause environmental damage. This tradeoff arises for all countries, whether high-income or low-income, and whether their economies are market-oriented or command-oriented.

• An externality, sometimes called a spillover, occurs when an exchange between a buyer and seller has an impact on a third party who is not part of the exchange. Externalities can be positive or negative.

• Market failure is when the market does not allocate resources on its own efficiently in a way that balances social costs and benefits; externalities are one example of a market failure.

• Social costs are costs that include both the private costs incurred by firms and also additional external costs incurred by third parties outside the production process.

Clawson and Knetsch [1966] used two different expenditure measures to gauge the importance of outdoor recreation in consumers’ economic decisions. The first involved the fraction of recreation expenditures in all of personal consumption expenditures. These expenditures consist primarily of commodities associated with leisure time. While the components have changed dramatically over the 71 years of available data, the overall intent of the category appears to be an effort to identify expenditures on commodities or services that are associated with uses of one’s leisure time. Between 1929 and 1959 recreation expenditures as a fraction of personal consumption increased from 5.89 to 6.53 percent.3 Clawson and Knetsch’s Figure 18 indicates that with the exception of the period 1930–1944 the pattern of growth in all recreation and outdoor recreation as a share of disposable personal income has exhibited a steady upward trend. This conclusion is consistent with Costa’s [1999] evaluation using the historical record from the more detailed consumer expenditure surveys periodically available over the period 1888 to 1991. She finds that: “The share of household expenditure devoted to recreation rose from less than 2 percent in 1888 to 3 percent in 1917, 4 percent in the mid-thirties, 5 percent in 1950 and 6 percent in 1991” (p. 10). Because she argues that this pattern indicates improving living conditions, it seems appropriate to use her general reasoning for other developing countries and conclude that increased income will likely lead to increased leisure and to expenditures on recreation related goods and services becoming a larger share of their consumers’ budgets. Of course, this does not necessarily mean the increases in leisure are associated with outdoor recreation