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to quantity q2 ? areas under the demand curves between quantity ql and quantity q2 ? area b / total area a + b ▲ ? The people with the higher demand curve must place a greater value on this item they are willing to pay more than the people whose demand curve is the lower function ? degradation of the natural environment ? the impacts of environmental programs and policies ? a clear notion of the value that people place on different things recognize shortings ? For one thing demand, and therefore benefits are often very hard to measure when it concerns environmental questions. ? Demand curves are critically affected by the ability to pay for something as well as preferences. ▲ ? The lower demand curve could represent a group of people with lower ines than those with the higher demand curve. ? lead us to conclude that the increase in quantity of q2 – ql would produce benefits that the lower ine people value less than the higher ine people. ? While the logic of the concept is clear, we have to be careful in using it, especially when we are dealing with groups of people with diverse ine levels. ? An individual39。s demand for something is clearly affected by how much he knows about it. ? A person would not be willing to pay for a good if he was ignorant of its very existence. ? We don39。t fully understand many of the impacts that environmental degradation is having。 furthermore, peoples39。 views about the importance of many of these impacts vary due to influences by the media, the scientific press, and so on. ? in some of these cases: people are influenced by all kinds of real and imagined factors ? be cautious about taking peoples39。 demand curves of the moment, as true expressions of the benefits of environmental actions COST the other side ? Any production process requires a variety of productive inputs — labour, machinery of various descriptions, energy, raw materials, waste handling equipment, and so on. ? Valuation of these inputs is straight forward for a private firm operating in a market economy: they are valued according to what they cost to procure in the markets for these items. ? a broader concept opportunity cost ? Productive inputs used to produce a particular good could have been used to produce a variety of other goods and services. ? The opportunity cost of producing something consists of the maximum value of other outputs we could and would have produced had we not used the resources to produce the item in question. ? People who volunteer their time to clean up trash in parks or on roadsides ? production residuals are pumped into water environment affect environmental quality ? Opportunity costs are relevant in any situation where a decision must be made about using productive resources for one purpose rather than another. ? For a public agency with a given budget, the opportunity costs of a particular policy are the value of alternative policies they may have pursued. ? For a consumer, the opportunity cost of spending time searching for a particular item is the value of the next most valuable thing to which they may have devoted their time. Cost Curves ? Cost information can be summarized with cost curves, which are geometric representations of production costs. ? differentiate between marginal costs and total costs ▼ Fig. 5 The Concept of Marginal Cost with quantity on the horizontal axis and a moary index on the vertical axis The cost curves are meant to apply to a single producing anization, a firm, or perhaps a public agency, that is producing some good or service. ▼ ? The top panel shows marginal costs in terms of a steppedshaped relationship. ? The bottom panel gives us a smooth marginal cost curve. ? marginal cost curves to determine total production costs