Environmental Economics

Question 1

What is Market Failure?

Answer 1

Market failure occurs when price mechanism does not allocate goods or services in socially acceptable Pattern.

Question 2

What is a Paretian Optimum?

Answer 2

A Paretian optimum (Pareto efficiency) is an allocation of resources such that it is impossible to make anyone better off without making someone else worse off

Question 3

What are Sources Of Market Failure?

Answer 3

1. Externality
   Externalities are spill-over effects or off-site effects results from both production and consumption decisions.
   They are the costs or the benefits that are external to the decision maker and are imposed on others.
   That externalities can be either positive or negative.
2. Public goods or collective goods:
   There are two characteristics to define private and public goods.
   The quantity of the good is not reduced by its consumption by any individual (non rival-ness in consumption).
   It is impossible to exclude everyone enjoying the whole supply (non-exclusivity in consumption).
3. Common property and inadequate (ill-defined) property rights:
   Common property is a property that is ‘shared’ between number of private interests, who may be member of a defined community or society.
   Eg: agricultural land or pastoralism in Africa
   A public property is held by the government
   Eg. forestlands (or protected areas)
   A private property is held by individuals or groups
   with well-defined property rights on users.

Question 4

How can market Failure be corrected?

Answer 4

Market failure can be corrected by community and/or government intervention.
But when a policy made by a government fails to correct the market failure it is regarded as a policy failure.

Question 5

Name 5 corrections to Market failure?

Answer 5

1.Physical control measures:
Some types of market failure are corrected by direct intervention. Eg: excessive tree clearing could be regulated by permits (the case of deforestation in clearing the old-forests for milling in Tasmania).
Or pollution is controlled by providing permits, which are sometimes tradeable in the market (Eg: tradeable pollution permits practiced in European countries) as part of their Emission Trading Schemes (ETS).
2.Bribe and compensation payments:
Paid to some one to stop polluting. But the problem is how much to compensate
3. Taxes and subsidies:
Some kind of taxes (or subsidies) to modify private costs (or private benefits) in line with social costs
(or social benefits) - called Pigovian taxes.
4. Internalising externality:
Eg: well-defined property rights to internalise the externalities from the common property problems, such as avoiding over-fishing within boundaries of ocean (fishing by Australians and Indonesians)
5. Selling licences and rights:
Eg: licence from government (or royalty payable to government) as user fee for using a public good (such as park, wildlife, and forest areas); regulations to control discharges to streams/polluting the air.

Question 6

What is Bioeconomics?

Answer 6

Bioeconomics is concerned with interrelationship between economics and biological systems
Eg: fishery, forestry and pasture
In these systems human remove (i.e. harvest) a proportion of the biomass and may let the rest for subsequent regeneration.Bioeconomics is related to growth of the resource, its availability for economic exploitation and the cost of exploitation.
It is also concerned with the potential for over exploitation of the resource.

Question 7

What is the term Sustainability In Agriculture?

Answer 7

The term sustainability in agriculture can be defined as satisfying human food and fiber needs while also taking into account the environmental costs and resource depletion (the main resources concerned are soil and water).

Question 8

Key Terms

Answer 8

•Agricultural impacts on environment (examples) •Private (market) cost - (supply curve/MC) •Private (market) benefit - (demand curve/MB) •Social cost and benefit differs (why?)
•Market failure (define/explain)
•Private optimum
•Social optimum
•Welfare loss
•Sources of market failure
Externality (define)
•Agric. examples for externalities (?)
•Public goods (non-rival/non-exclusive in use) •Types of goods (based on rivalry/exclusiveness) •How to correct market failure (examples?) •Bio-economics/model of sustainable yield •Maximum sustainable yield (MSY)
•Fishery example and MSY
•Policies for fishery management
•Carrying capacity and tragedy of commons •The water debate/water trading/policies