Chapter 18: Environmental Protection & Negative Externalities Flashcards
How much did the US population increase by from 1970 to 2010?
About 1/3
Population 1970: 205 million
Population 2010: 310 million
How much did the US economy increase by from 1970 to 2010?
Doubled
Externality
Effect of a market exchange on an outside third party
Market Failure
When the market on its own does not allocate resources efficiently in a way that balances social costs and benefits. Externalities, such as pollution, are an example of market failure.
Additional external cost
Additional costs incurred by third parties outside the production process when a unit of outreach is produced
When did the United States generally begin passing comprehensive environmental laws?
Late 1960s-early 1970s
Command-and-Control Regulation
Laws that specify allowable quantities of pollution and detail pollution-control technologies.
Generally, firms are required to increase their costs, and therefore bear the social costs of pollution,
When was the EPA created?
1970
When was the Clean Air Act passed?
1970
When was the Clean Water Act passed?
1972
What are problems with command-and-control regulation (3)?
- No incentive to improve environment beyond the law
- Inflexible, requiring the same standards for all polluters
- Controlled by legislators and EPA, and therefore political and subject to lobbyists. Full of loopholes and fine print.
What would market-oriented environmental policies do?
Create incentives to allow firms flexibility in reducing pollution
What are the 3 main categories of market-oriented environmental control?
- Pollution charges
- Marketable permits
- Better-defined property rights
Pollution Charge
Pollution Tax
Tax imposed on the quantity of pollution that a firm emits. Incentivizes firms to reduce emissions, a long as marginal cost of doing so is less than the tax
Marketable Permit Program
Cap-and-Trade
Permit that allows a firm to emit a certain amount of pollution. Firms with more permits than pollution can sell the remaining permits to other firms.
Property Rights
Legal rights of ownership on which others are not allowed to infringe without paying compensation
Ronald Coase
Nobel Prize winner in economics, who illustrated the importance of defining property rights with the train-emitting-sparks-by-a-farmer’s-field analogy
What is the advantage of market-oriented environmental tools?
Their incentives and flexibility can achieve any desired reduction in pollution at a lower cost to society
(examples: cap-and-trade permits that shrink each year, gasoline taxes, can/bottle refundable charges)
4 Benefits of a Cleaner Environment
- Human health and lifespan
- Healthy industries that rely on clean air/water (farming, fishing, tourism)
- Higher property values
- Human satisfaction & enjoyment
Ecotourists
Tourists who hope to appreciate the ecology of their destination
What is the benefit of ecotourism?
Provides an incentive for low-income people in poor countries to conserve their local environment, rather than destroying it to survive
As the extent of environmental protection expands, will marginal costs of environmental protection rise or fall?
Rise, because the least expensive and easiest reductions can be made first, leaving the more expensive solutions for later
As the extent of environmental protection expands, will marginal benefits of environmental protection rise or fall?
Fall, because the most effective changes can be made first, leaving the lesser effective solutions for later
What is a major problem internationally in addressing environmental problems?
Even if most nations individually took steps to address their environmental issues, no national acting alone can solve certain problems that spill over borders (CO2 emissions)
Biodiversity
Full spectrum of animal and plant genetic material
International Externality examples
Global warming
Diminishing of biodiversity
Production Possibility Frontier (PPF)
Tradeoff curve between economic output and the environment.
X Axis: Environmental Protection
Y Axis: Economic Output
Quarter-circle PPF curve down. As environmental protection increases, economic output decreases. Inefficient to be “inside” the curve.
Allocative Efficiency
position on the PPF
The choice between economic output and environmental protection along the production possibility frontier (not efficient if country gets “off” the frontier, below the curve)
Productive Efficiency
position on the PPF
Somewhere on the production possibility frontier rather than inside it
