FNR 407 Forest Economics

1. FNR 407 Forest Economics William L. (Bill) Hoover Professor of Forestry 494-3580 743-4120 whoover@purdue.edu

2. Economics • Allocation of scarce resources to unlimited wants • Market • Other, e.g.? Supply (S) Price (P) Demand (D) Quantity (Q)

3. Demand Curve • Schedule of amounts consumers are willing and able to buy at various prices • Why is curve negatively sloped • Declining marginal utility • Substitution effect • Not same as consumption P P1 P2 Q1 Q2 Q

4. Price Elasticity of Demand(Ep) % change in quantity demanded % change in price ∆Q/Q =∆Q x P =∆ Q P ∆ P/P Q ∆P ∆ P x Q Ep is function of (1) inverse of the slope of the demand curve and (2) the point on the demand curve

5. Relationship of Ep to Total Revenue • When Ep > |1|, decreasing price increases total revenue (the elastic range of the demand curve) • When Ep = 1, total revenue is maximized • When Ep < |1|, decreasing price decreases total revenue (the inelastic range of the demand curve)

6. Marginality • Given the function Y = f(X), • Marginal change is change in Y per unit change in X • ∆Y/ ∆X, or • dY/dX (first derivative of Y with respect to X • Example • Y ≡ yield, X ≡ year • dY/dX = current annual increment • Y/X = mean annual increment

7. Supply Curve • Schedule of amounts producers are willing and able to supply at various price levels • Marginal cost curve above average total cost P Q

8. Supply Curve • Marginal cost (MC) curve above average total cost (ATC) • Can’t cover all costs in long-run with price below ATC Price (P) MC ATC P1 P2 Q2 Q1