Environmental economics

Question 1

Why is regulation necessary?

Answer 1

To make producers pay for the full cost of their activity

Question 2

How should there be balance between environment and growth?

Answer 2

Growth of living standards should be no greater than the ability of the environment to sustain life

Question 3

Definition of sustainable development

Answer 3

development that meets the needs of the present without compromising the ability of future generations to meet their own needs

Question 4

2 fundamentals of sustainable growth

Answer 4

1. Waste generated must not be greater than environments ability to assimilate it
2. Rate of use of renewable resources can’t outpace regeneration rate

Question 5

Why rapid depletion of natural resources may not be bad (3)

Answer 5

1. Exhaustible resources e.g. coal can be replaced by renewable or man made capital
2. Technical progress from growth can lead to reduced future consumption of the resource
3. High opportunity cost of holding large amounts of natural capital

Question 6

Why depletion of natural resources is an issue (3)

Answer 6

1. The irreversibility of some damage makes the cost high
2. Uncertainty in how much damage is being done by one activity given interdependence of eco-systems
3. Public attitude may be unsympathetic to sustainability over economic gain (luxury good) despite direct effect

Question 7

3 stages of bringing exploitable resources to market

Answer 7

1. Exploration and discovery
2. Development
3. Production and distribution

Question 8

Problem of intergenerational wealth

Answer 8

If depletion is too rapid the next gen loses out

If too rapid current gen suffers

Question 9

What is the optimal depletion rate in a perfect market?

Answer 9

When the market price of resources is induced to rise at the rate of interest

Question 10

What does price show in a perfect market?

Answer 10

The relative scarcity of the resource in the market

Question 11

Critical minimum size (CMS)?

Answer 11

Below this size reproduction is so low survival of the harvestable resource cannot be guaranteed

Question 12

Maximum carrying capacity (MCC)?

Answer 12

Population cannot grow beyond MCC due to insufficient food causing DR to exceed BR

Question 13

Maximum sustainable yield?

Answer 13

= stock size that gives the highest natural rate of regeneration

Question 14

Characteristics of CMS stock

Answer 14

stock at CMS stage probably driven by high net benefit to exploitation

Question 15

What property right control depends on (2)

Answer 15

Exclusive private ownership

Low transaction costs

Question 16

Problem with property control assumptions (2)

Answer 16

Open access resources don’t have private ownership

Cost of firms going to a regulator against a larger transgressor may be too costly

Question 17

5 conclusions of Stern review

Answer 17

If business continued as normal then:

1. Global temp will rise 2-3*
2. 1/6 of the population at flood risk
3. Weak crop yields bringing hunger
4. Potential extinction of 15%-40% of species
5. More extreme weather

Question 18

Who is expected to suffer most and earliest from climate change?

Answer 18

LEDC’s

Question 19

What is the cost of taking action now vs later?

Answer 19

1% of current GDP over 10 years spent on environmental protection = 5%-20% per year

Question 20

4 policy instruments for environmental protection

Answer 20

Direct controls
Tax
Subsidies
Policy permits

Question 21

2 ways the planet can be valued

Answer 21

Market surveys questionnaires

Question 22

Total economic value (TEV) equation

Answer 22

TEV = actual use + optional value + existence value

Question 23

Actual use value

Answer 23

Value applied by those in market indirectly/directly involved

Question 24

Optional value

Answer 24

Value to those that may use it in future

Question 25

Existence value

Answer 25

Value to those with no intention to use but are still affected by

Question 26

3 problems with Questionnaire construction

Answer 26

1. Free rider problem- some people may claim to value environmental protection more because they don’t expect to pay
2. Design- May influence opinion
3. Asymmetry- Higher value on now vs. later