134
There is also one result that is often confusing for some that merits explanation.
Often actions that increase supply decrease producer welfare but benefit consumers,
while actions that reduce supply are beneficial to producers but not consumers. This
occurs since agriculture and energy both typically face an inelastic demand curve.
In economics, inelastic demand curve means when the percentage change in price
exceeds the change in quantity demanded, thus, for example, a 10% quantity
increase could cause commodity price to fall by say 20%. The more inelastic the
demand, the steeper the curve and the more price will react to a quantity change.
More supply typically lowers prices substantially reducing producers’ net incomes
but causing consumers to increase the amount of goods they buy, and causing the
consumer dollar to go farther.
5.2.5 Value of Water in Alternative Uses
Water has differential value in alternative uses, such as irrigation, cooling in power
plants, ecological support, human consumption, and direct use, pollution dilution,
hydroelectric power generation, and unconventional oil and gas production (fracking). These differential values exist because of the high costs of moving water and
historical water allocation procedures (like prior appropriation which give certain
users water rights regardless of use value).
Consumers also derive value from water and actions that lower its costs as this
allows them to consume more water or divert money to buy other goods again causing the dollar to go farther.
Consistent methods of estimating and comparing water values are required when
examining the implications of Nexus projects. Approaches to value water are discussed in Young and Loomis (2014).
costs are the questions where benefit–cost analysis can be applied. The formula below simply speaks of benefits and costs, that is,
i t
i t
t
i t
i t
t
B
s
C
s
,
,
,
.
¦
¦
1
1
,
where t is time, i is the ith individual, B i,t are benefits to the ith individual in
period t, and C i.t are corresponding costs while s is the discount rate. Thus, the
first term is summation of benefits to individuals and the second term is the
summation of costs to individuals. The basic decision rule for judging whether
a project may be desirable occurs is when the results from the above formula
are greater than zero. The discount rate refers to the rate at which the value of
something in the future is reduced to obtain a value in the present. For example, a discount rate of 10% means that something with a value of 100 a year
from now is valued at 90 today. Thus, future costs and benefits are discounted
to some reduced value today.
B. A. McCarl and Y. Yang
There is also one result that is often confusing for some that merits explanation.
Often actions that increase supply decrease producer welfare but benefit consumers,
while actions that reduce supply are beneficial to producers but not consumers. This
occurs since agriculture and energy both typically face an inelastic demand curve.
In economics, inelastic demand curve means when the percentage change in price
exceeds the change in quantity demanded, thus, for example, a 10% quantity
increase could cause commodity price to fall by say 20%. The more inelastic the
demand, the steeper the curve and the more price will react to a quantity change.
More supply typically lowers prices substantially reducing producers’ net incomes
but causing consumers to increase the amount of goods they buy, and causing the
consumer dollar to go farther.
5.2.5 Value of Water in Alternative Uses
Water has differential value in alternative uses, such as irrigation, cooling in power
plants, ecological support, human consumption, and direct use, pollution dilution,
hydroelectric power generation, and unconventional oil and gas production (fracking). These differential values exist because of the high costs of moving water and
historical water allocation procedures (like prior appropriation which give certain
users water rights regardless of use value).
Consumers also derive value from water and actions that lower its costs as this
allows them to consume more water or divert money to buy other goods again causing the dollar to go farther.
Consistent methods of estimating and comparing water values are required when
examining the implications of Nexus projects. Approaches to value water are discussed in Young and Loomis (2014).
costs are the questions where benefit–cost analysis can be applied. The formula below simply speaks of benefits and costs, that is,
i t
i t
t
i t
i t
t
B
s
C
s
,
,
,
.
¦
¦
1
1
,
where t is time, i is the ith individual, B i,t are benefits to the ith individual in
period t, and C i.t are corresponding costs while s is the discount rate. Thus, the
first term is summation of benefits to individuals and the second term is the
summation of costs to individuals. The basic decision rule for judging whether
a project may be desirable occurs is when the results from the above formula
are greater than zero. The discount rate refers to the rate at which the value of
something in the future is reduced to obtain a value in the present. For example, a discount rate of 10% means that something with a value of 100 a year
from now is valued at 90 today. Thus, future costs and benefits are discounted
to some reduced value today.
B. A. McCarl and Y. Yang