1 Chapter 17 Economics of Outdoor Recreation Outdoor recreation in many developed countries has grown rapidly in the latter part of the 20 th century

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Data for the U.S. on the number of people who participated in different types of outdoor recreation Large percent increases in number of participants were in bird watching, hiking, backpacking, and sightseeing Percent increases in number of participants in fishing and hunting were small To some extent this may reflect the impacts of the environmental movement, which has tended to put greater emphasis on nonconsumptive uses of resources rather than the traditional consumptive uses Traditionally, much of the supply of outdoor recreation resources has been a public function In recent decades there has developed a privately provided market in outdoor recreation, from ski resorts to fishing and whale watching 3 Table 17-1, p.334

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Demand curves for an imaginary public park: – Horizontal axis: visitor-days, defined as the total number of day-long visits (two half-day visits make one visitor- day); vertical axis: the entrance price to visit the park – There are a series of aggregate demand curves, each pertaining to a different time period (10 years ago, the current period, and 10 years in the future), arrived at by summing the individual demand curves of visitors to the park – q 1, q 2, and q 3 : numbers of visitor-days if entrance fees = 0 – Population growth, income growth, transportation improvements or drops in the price of gas, and taste and preference toward outdoor recreation shift D to the right 5 1. The Demand for Outdoor Recreation Figure 17-1, p.335

Efficient Visitation Rates D is market demand curve for visits to a public park (MPB on slide 9 ) D does not account for congestion externalities (MEB on slide 9)—when the rate of visitation increases, more visitors cause congestion that lowers the value of the visitation experience; if entrance fees are 0, there are open-access externalities—the users of the resource inflict on one another in the form of diminished resource value (q 0 : open-access level of visitation) 6 Figure 17-2, p.337

Efficient Visitation Rates (con’t) Marginal costs of operating the park are constant at a level of MC (MSC on slide 9 ) Curve A is MSB on slide 9 MSB = MPB + MEB; MEB is negative though!!! In order to lead to the socially efficient use rate q*, an extra fee = ‒MEB = congestion cost = C must be put into place Total fee = MC + C 7

Consumption externalitiesProduction externalities (c) Positive (d) Negative (b) Positive (a) Negative The benefits to the rest of society of people being vaccinated before traveling abroad Noise pollution from using car stereos The benefits to the environment that arise from the planting of woodland by a forestry company Wastes being dumped into a river by a company 8

Modeling a Tax (on a negative consumption externality) 9 $ Q MPB MSC MSB = MPB + MEB 0 QEQE QCQC MPB t b a Amount of tax

Rationing: the controlled distribution of scarce resources, goods, or services; rationing controls the size of the ration, one’s allotted portion of the resources being distributed on a particular day or at a particular time; in economics, rationing is an artificial restriction of demand Rationing by price: charge an entrance fee sufficiently high that visitation is limited to q* Nonprice rationing methods: limit entry to those people who meet some characteristics; first- come, first-served Rationing by Price

Greg Mankiw’s Microeconomics-- CHAPTER 5 ELASTICITY AND ITS APPLICATION P Q D Q2Q2 P2P2 P1P1 Q1Q1 P rises by 10% Q falls by 15% 15% 10% = 1.5 Price elasticity of demand = Percentage change in Q d Percentage change in P Example: Pricing and Total Revenue 11 Along a D curve, P and Q move in opposite directions, which would make price elasticity negative. We will drop the minus sign and report all price elasticities as positive numbers. Along a D curve, P and Q move in opposite directions, which would make price elasticity negative. We will drop the minus sign and report all price elasticities as positive numbers. Rule of thumb: The flatter the curve, the bigger the elasticity. The steeper the curve, the smaller the elasticity.

D “Inelastic demand” P Q Q1Q1 P1P1 Q2Q2 P2P2 Q rises less than 10% < 10% 10% < 1 Price elasticity of demand = % change in Q % change in P = P falls by 10% Consumers’ price sensitivity: D curve: Elasticity: relatively steep relatively low < 1 Greg Mankiw’s Microeconomics-- CHAPTER 5 ELASTICITY AND ITS APPLICATION 12

D “Unit elastic demand” P Q Q1Q1 P1P1 Q2Q2 P2P2 Q rises by 10% 10% = 1 Price elasticity of demand = % change in Q % change in P = P falls by 10% Consumers’ price sensitivity: Elasticity: intermediate 1 D curve: intermediate slope Greg Mankiw’s Microeconomics-- CHAPTER 5 ELASTICITY AND ITS APPLICATION 13

D “Elastic demand” P Q Q1Q1 P1P1 Q2Q2 P2P2 Q rises more than 10% > 10% 10% > 1 Price elasticity of demand = % change in Q % change in P = P falls by 10% Consumers’ price sensitivity: D curve: Elasticity: relatively flat relatively high > 1 Greg Mankiw’s Microeconomics-- CHAPTER 5 ELASTICITY AND ITS APPLICATION 14

If demand is elastic, then price elast. of demand > 1 % change in Q > % change in P The fall in revenue from lower Q is greater than the increase in revenue from higher P, so revenue falls. Revenue = P x Q Price elasticity of demand = Percentage change in Q Percentage change in P Greg Mankiw’s Microeconomics-- CHAPTER 5 ELASTICITY AND ITS APPLICATION 15

If demand is inelastic, then price elast. of demand < 1 % change in Q < % change in P The fall in revenue from lower Q is smaller than the increase in revenue from higher P, so revenue rises. Revenue = P x Q Price elasticity of demand = Percentage change in Q Percentage change in P Greg Mankiw’s Microeconomics-- CHAPTER 5 ELASTICITY AND ITS APPLICATION 16

Differential Pricing Many parks have capacity limits, either hard limits like a certain number of campsites or visitation levels where congestion externalities begin to take hold Consider a park with a certain number of picnic sites q 0 ; MC is constant; D 1 is for weekday visitors and D 2 is for weekend visitors Two prices are required: during the week, set p 1 = MC. But this price will not work for weekends, because quantity at this price will be q 2 which exceeds the capacity q 0 ; then set price = p 2 during the weekends, thus total costs = c + d + e, total revenue = a + b + c + d + e, and profit = a + b, or, still charge p 1 on the weekends, but with nonprice rationing 17 Figure 17-6, p.345

A form of tourism involving visiting fragile, pristine, and relatively undisturbed natural areas, intended as a low- impact and often small scale alternative to standard commercial tourism Its purpose may be to educate the traveler, to provide funds for ecological conservation, to benefit the economic development of local communities, or to foster respect for different cultures Since the 1980s ecotourism has been considered a critical endeavor by environmentalists, so that future generations may experience destinations relatively untouched by human intervention Ecotourism