Chapter 23: Economics, Environment, and Sustainability (Sofia)

Question 1

What is a free-market economic system?

Answer 1

Controlled only by interactions of supply and demand and price, without government control.

Question 2

What is the market price equilibrium point?

Answer 2

supplier’s price matches what consumers are willing to pay

Question 3

What are subsidies?

Answer 3

Payment to help a business thrive

Question 4

What is natural capital?

Answer 4

Resources provided by the earth’s natural processes: air, land, soil, biodiversity, minerals, energy, and ecosystem services

Question 5

What is human capital?

Answer 5

People’s physical and mental talents that provide labor and innovation

Question 6

What is manufactured capital?

Answer 6

Tools such as machinery, materials and factories

Question 7

what are open-access resources?

Answer 7

clean air, the open ocean, Earth’s life support system: governments tend to fail at protecting these

Question 8

why do markets typically fail to protect the environment?

Answer 8

because they do not assign monetary value to natural capital or the harmful effects degrading ecosystems can have on human health

Question 9

What can be done by the government to protect the environment through economics?

Answer 9

They can use economic tools like regulations, taxes, subsidies, and tax breaks

Question 10

What are planetary sinks that pollutants can fall into?

Answer 10

air, water, soil, organisms

Question 11

Important ecosystem services include…

Answer 11

air and water purification, nutrient cycling, and climate control

Question 12

What are the kinds of value placed on ecosystems that are not represented in the marker (are not bought and sold)?

Answer 12

existence value, aesthetic value, and bequest (option) value: the amount people are willing to pay to protect the natural capital for future generations.

Question 13

What is the discount rate, in relation to the economic value of ecosystems?

Answer 13

The idea that ecosystem values will continue to decrease, and in the future they will be less valuable than they are today

Question 14

What is the optimum level of pollution cleanup?

Answer 14

When the cost of cleanup matches the cost of the harmful effects the pollution has on human life. As pollution gets cleaned up, the cost of cleaning goes up because the pollution has a lower concentration and therefore takes more energy to get the same amount of pollution removed than it did before.

Question 15

what is full-cost pricing?

Answer 15

the idea that harmful external costs (to environment) should be included in the market price of goods

Question 16

Why is full-cost pricing not used more widely?

Answer 16

1. ) producers of environmentally harmful products would have to change their ways
2. ) It is difficult to estimate environmental costs now and in the future
3. ) Government subsidies favoring politically powerful companies (rich ones who usually harm the environment)

Question 17

What are perverse subsidies?

Answer 17

subsidies leading to environmental damage

Question 18

Advantages to environmental taxes and fees

Answer 18

• bring about full-cost pricing
• encourage businesses to develop environmentally friendly products and technologies
• easy to administer by existing tax agencies

Question 19

Disadvantages to environmental taxes and fees

Answer 19

• low-income groups harmed unless baseline rates and safety nets are provided
• hard to determine optimal level for taxes and fees
• if set too low, wealthy polluters can just pay the taxes and use less money than they would to change their practices

Question 20

What is said to be needed for successful implementation of green taxes?

Answer 20

• should be eased in to over 10-20 years so businesses can adjust
• income, payroll, or other taxes would have to be reduced so there would not be a net increase in taxes
• the poor and and lower-middle class needs a safety net in place for their basic needs (baseline rates and such)

Question 21

Advantages of cap-and-trade pollution policies (tradable environmental permits)

Answer 21

• flexible and easy to administer
• encourage pollution prevention and waste reduction
• Permit prices to be determined by market trabsactions

Question 22

Disadvantages of cap-and-trade pollution policies (tradable environmental permits)

Answer 22

• wealthy polluters and resource users can buy their way out
• caps can be too high and not regulated, leading to low progress
• self-monitoring of emissions can allow cheating