3 Markets and Commodities Flashcards
was the most prominent spokesperson for the population crisis and was
typically identified as the paramount and persuasive neo-Malthusian of the time
Paul Ehrlich
Julian Simon had long maintained that human population growth improved living conditions and environmental quality, because
a) morepeople means more good ideas, and
b) more demand for things (including clean air and water) produces an incentive to find, make, and creatively maintain the world
Paul Ehrlich vs. Julian Simon
Economist Julian Simon bet biologist Paul Ehrlich in 1980 that human ingenuity would prevent resource scarcity despite population growth. Simon won, as the prices of five metals fell, supporting his view that innovation can overcome environmental limits, though critics questioned its broader relevance.
Explain the Market Response Model
A model thatpredicts economic responses to scarcity of a resource will lead to increases in prices that will result either in decreased demand for that resource or increased supply, or both
The market response model explains that when a resource becomes scarce, its price goes up. Higher prices then lead people to use less of it (lower demand) or find more of it (higher supply), balancing the market.
Who came up with the Coase Theorem
Ronald H. Coase
What is Coase Theorem
A thesis based in neoclassical economics, holding that externalities (e.g., pollution) can be most efficiently controlled through contracts and bargaining between parties, assuming the transaction costs of reaching a bargain are not excessive
The Coase Theorem states that problems like pollution can be solved efficiently if people or companies negotiate, bargain and make contracts or agreements, as long as the cost of making a deal is low.
What is externality
an effect, where one person’s economic activity comes at the
expense of another
What is Market Failure
A situation or condition
where the production or exchange of a good or service is not efficient; this refers to a range of perverse economic outcomes stemming from market problems like monopoly or uncontrolled externalities
occurs when the free market does not efficiently allocate resources, leading to negative social or environmental outcomes. Some key reasons for market failure include: (5)
Market failure
- Externalities – Costs or benefits that affect third parties not directly involved in a transaction (e.g., pollution from a factory harming nearby residents).
- Public Goods – Goods that are non-excludable and non-rivalrous (e.g., clean air, biodiversity), leading to underinvestment.
- Monopolies and Monopsonies – When one seller or buyer controls the market, leading to inefficiencies.
- Transaction Costs – High costs of negotiation and enforcement prevent efficient market solutions.
- Information Asymmetry – When one party in a transaction has more or better information than another, leading to inefficient choices.
What is transaction costs
In economics, the cost associated with making an exchange, including, for example, drawing a contract, traveling to market, or negotiating a price; while most economic models assume low transaction costs, in reality these costs can be quite high, especially for systems with high externalities
Other asymmetries also plague markets. One of the most
serious is that of _______, where many buyers face one service provider or owner, or _________, where many sellers face a single buyer.
monopoly
monopsony
To address market failures, economists propose _____________ that use economic incentives to correct inefficiencies.
market-based solutions
market-based solutions common approaches include (3)
Green Taxes
Cap and Trade
Green Consumption
What is Green Taxes
Taxes on environmentally harmful activities (e.g., carbon tax) to encourage sustainable behavior.
One of the most direct ways to harness the market, and therefore to influence environmental decision-making by people and firms, is through artificially altering prices. Cause according to market response model, higher price, less demand or find alternatives.
What is Cap and Trade
A system where the government sets a pollution limit (cap) and allows companies to trade pollution permits to stay within this limit.
What is Green Consumption?
Green consumption refers to consumer choices that prioritize environmentally friendly products and services. It operates on the idea that if people buy “green” products, businesses will have an incentive to produce more sustainable goods, reducing environmental harm.
It relies on market demand—when consumers prefer eco-friendly products, companies compete to meet that demand. This can include buying organic or sustainably sourced products, choosing energy-efficient appliances, supporting eco-friendly brands.
The exaggerated or false marketing of a product, good, or service as environmentally friendly
Greenwashing
Programs to certify commodities for the purposes of assuring their ecological credentials, such as organically grown vegetables or sustainably harvested wood products
Green Certification
Beyond Market Failure: Gaps Between Nature and Economy (3)
- Non-Market Values: Can Nature Be Priced?
- Money vs. Nature: Can Markets Keep Up with Ecosystems?
- Economic Inequality: Who Controls Nature?
Many aspects of nature, such as biodiversity, clean air, and species conservation, have intrinsic value that cannot be captured by market prices. While markets respond to economic incentives, they often fail to account for the moral, ecological, and long-term benefits of preserving nature. For example, whales were hunted to near extinction before the market adapted, showing that relying solely on market forces can lead to irreversible environmental damage.
- Non-Market Values: Can Nature Be Priced?
Markets are driven by short-term price fluctuations, while natural ecosystems operate on long-term cycles, leading to mismatches between economic decisions and environmental sustainability. A forest, for instance, may be cut down for immediate profit, but it takes decades to regenerate, during which biodiversity is lost and climate regulation is disrupted. Since markets prioritize short-term financial returns, they often fail to align with the slower, more delicate balance of nature.
- Money vs. Nature: Can Markets Keep Up with Ecosystems?
Market-based environmental solutions assume that everyone can participate equally, but in reality, wealth disparities give the rich more control over environmental decisions. Wealthy corporations can buy pollution credits instead of reducing emissions, while low-income communities, which are often most affected by pollution, lack the resources to fight for cleaner air and water. This economic imbalance makes market solutions less democratic and can worsen environmental injustice.
- Economic Inequality: Who Controls Nature?
