ch7 environmental economics Presentation Flashcards
what is environmental economics?
- not only about money
- involves persuading people and organizations to act in a wya that benefits the environment within a democratic framework
what does environmentaal economic focus in?
◼Controlling pollution and environmental damage
◼Sustaining renewable resources
what does environmental decision making involve?
tangible and intangible factors
what is a tangible factor
- one you can touch buy and sell
x: a house
intangible factors
one you cannot touch directly, but people value it
X: beauty of a sunset
(it is harder to measure economically)
what is public services functions
- services ecosystems provide to humans and the environment
x: plants cleaning air, food
Economists refers to the systems that provides public services functions as…
Natural capital
example of public service functions of nature
pollinators
in general, public functions of living things are estimated at in the us to do how much work in dollars?
3 trillion to 33 trillion dollars in benefit to humans and the environment
necessary conditions for markets to produce efficient allocations and maximizes welfare
- Markets exist for all goods and services produced and consumed.
- All markets are perfectly competitive.
- All transactors have perfect information.
- Private property rights are fully assigned in all resources and commodities.
- No externalities exist.
- All goods and services are private goods. That is, there are no public goods.
- All agents are maximizers.
what causes market failure?
- An economy may be inefficient for the existence of:
- Market Power
- Ex: monopoly
- Public Goods
- Externalities
- Asymmetric information…
what are externalities
“Costs or benefits that don ́t show up in the price tag”
- The uncompensated impact of one person’s actions on the well-being of a
bystander - Market failure
different types of externalities
negative and positive
negative externality
Impact on the bystander is adverse
example: air and water pollution
positive externality
Impact on the bystander is beneficial
example: Production of nickle
◼Private costs include:
Purchasing ore
Energy to run the smelter
Building the plant
Paying employees
◼Externalities include:
Degradation of the environment from plant
emissions
positive externalities
- Education
- Benefit of education private
- Externalities: better government, lower crime rate, higher productivity and wages
- Social value – demand
- Higher than private value
- Social value curve
- Above demand curve
graph about negative externality
In the presence of a negative externality, such as pollution, the social cost of the good exceeds the private cost. The optimal quantity, QOPTIMUM, is therefore smaller than the
equilibrium quantity, QMARKET
graph about positive externality
In the presence of a positive externality, the social value
of the good exceeds the private value. The optimal
quantity, QOPTIMUM, is therefore larger than the equilibrium quantity, QMARKET
solve this negative external problem:
Need to get public to value clean air and other environmental benefits as
greater than zero
Possible solution-
Quantitative evaluation of the tangible natural
resources
Air, water, forests, and minerals
solve this negative external problem:
Who should bare the burden of these environmental and ecological
costs?
possible solutions:
Include it in costs of production through taxation or fees
Costs could be shared by the entire society and paid for by general taxation
what does the “polluter pays” approach provide?
much stronger incentives for cost-effective pollution reduction
excludability
property of a good whereby a person can be prevented from using it
x: a car
Rivalry in consumption
property of a good whereby one persons use diminishes other peoples use
x: if you eat an apple then another person can not eat that same apple
