3. Pollution & Resource Degradation as Externalities Flashcards
Human production and consumption processes rely on the environment in what two ways?
1) as a SOURCE of raw materials; and
2) as a SINK (or repository) for waste materials
What is natural capital?
It is the input that nature provides for our production and consumption processes.
What is the result of overuse of sources & sinks?
Sources - resource degradation
Sinks - pollution
What is a negative externality?
It is a cost of a transaction that is not borne by the buyer or the seller. Pollution is borne by people who idd not buy or sell the polluting source.
Where do negative externalities occur?
Where there is open access to common property (eg air, water and land)
What is a resource rent?
It is where access to natural capital is restricted by either government action or private ownership and as a result a resource rent is earned by those who retain access.
What is the open access problem?
That all men pursuing their own interest will overexploit the area they have access to. For example if a lake could sustainably support 5 fishing boats, how do you stop more people from fishing?
When the open access problem occurs how would this be drawn on a graph?
Marginal revenue first stays constant and then falls reflecting eventual declining marginal productivity as additional users use it. Open access will result in enough users until where average revenue is no longer covering costs, even though profits are declining.
What is the profit maximising amount of use and where is this set on a graph?
This is where profits are maximised and occurs where the marginal revenue just exceeds marginal costs.
Without some kind of restrain on open access to common property, what is the result?
1) Overexploitation will occur
2) Government imposed restraints are required and will lead to a resource rent to those who retain access
3) the resource rent may be collected as a tax or fee, which can be used to subsidise those who lost access.
What are public goods?
They are goods enjoyed in common and are non-excludable, meaning everyone can use them.
The provision of public goods is a problem for the free market due to the existence of what two factors?
1) transaction costs - associated with fixing or correcting the public good
2) free riding
What do free-market environmentalists believe?
That polluters should be left unregulated and victims should sue to ensure environmental quality.
This is unlikely though due to the public goods problem, not to mention is inefficient, unsafe and unsustainable.
What is another solution other than the free-market environmentalist one?
Government regulation is needed to internalise environment externalities.
What are sustainable businesses?
They are businesses focus on profitability reducing pollution and resource degradation within the structure of existing policies, laws and regulations.
