Environmental Sustainability

Question 1

What is ecologically sustainable development?

Answer 1

The conservation of environmental resources to maintain long-term growth and quality of life

Question 2

What is a market failure?

Answer 2

An inefficient allocation of resources by a free market

Question 3

What is a public good?

Answer 3

A product that is both non-rival and non-exclusive

Question 4

What does non-rival mean?

Answer 4

Use of the product by one person does not affect the use of it by another person

Question 5

What does non-exclusive mean?

Answer 5

It is impossible to prevent a person from using the product even if they didn’t pay for it

Question 6

What is a negative externality?

Answer 6

When production or consumption of a product results in a cost for a third party

Question 7

What is a positive externality?

Answer 7

When production or consumption of a product results in a benefit for a third party

Question 8

What does the diagram of a negative externality look like?

Answer 8

The ‘social cost’ is shown by a supply line that is above (left of) the ‘private cost’ supply line

Question 9

What does the diagram of a positive externality look like?

Answer 9

The ‘social benefit’ is shown by a demand line that is above (right of) the ‘private benefit’ demand line

Question 10

What is the difference between a social cost and a private cost, and what is an example of each for a type of electricity generation?

Answer 10

The private cost is the cost of producing the good, such as buying coal to burn. Whereas the social cost is the impact on a third party, such as the impact of emissions from burning coal on the climate

Question 11

What is the difference between a social benefit and a private benefit, and what is an example of each for a type of electricity generation?

Answer 11

The private benefit is the benefit of using the good, such as cheaper electricity bills if a person installs solar panels on their roof. Whereas the social benefit is the impact on a third party, such as the benefit from the solar panels of reducing greenhouse gas emissions and the extent of climate change

Question 12

What is a free rider?

Answer 12

A person who benefits from something without paying for it

Question 13

Why are environmental issues caused by market failure?

Answer 13

If the full cost of an action is not reflected in the price, such as pollution, then firms will continue to produce it.

Likewise, if the price does not reflect the full benefit of doing something, such as reducing emissions or planting trees, then firms will have an insufficient incentive to do it.

Question 14

What is climate change and why is it occurring?

Answer 14

Greenhouse gas emissions from burning fossil fuels and deforestation are trapping heat in the earth’s atmosphere

Question 15

Why is climate change an economic risk for Australia?

Answer 15

More extreme weather events such as droughts, floods and cyclones will reduce productivity and will incur costs for rebuilding

Question 16

What is the difference between renewable and non-renewable resources? (and give an example of each)

Answer 16

A renewable resource will replenish to replace the portion that has been used, such as fish or solar energy.

A non-renewable resource is one that will not replenish, such as coal or oil.

Question 17

Why is it important to protect natural environments?

Answer 17

1) Provide resources (e.g. clean water, food chains)
2) Carbon sequestration
3) Tourism
4) Intrinsic value

Question 18

What are 4 types of environmental policies?

Answer 18

1) Targets
2) Regulations
3) Market-based mechanisms
4) International agreements

Question 19

Why are environmental targets useful?

Answer 19

1) inform government policy-making
2) increase certainty for business investment

Question 20

What is the limitation of environmental targets?

Answer 20

There is no guarantee the target will be achieved unless backed up with other policies

Question 21

Why are regulations useful to protect the environment?

Answer 21

Laws will guarantee that desirable activities will be undertaken and undesirable activities will not

Question 22

What are the limitations of using regulations to protect the environment?

Answer 22

1) May create compliance costs for firms (e.g. following the rules, completing paperwork)
2) Does not let firms find the cheapest way to reduce the negative externality

Question 23

What is a market-based mechanism for environmental management, and what are 3 types of market-based mechanisms?

Answer 23

A price signal to internalise environmental externalities, which can be done with:

1) subsidies
2) Pigovian taxes
3) cap-and-trade schemes

Question 24

Why are market-based mechanisms useful for protecting the environment?

Answer 24

Utilise the free market to find the cheapest way to reduce the negative externality

Question 25

What are the limitations of market-based mechanisms for protecting the environment?

Answer 25

1) Politically unpopular and regressive (because they increase prices)
2) Difficult to monitor and enforce resource use

Question 26

What are the limitations of international agreements for protecting the environment?

Answer 26

It is hard for countries to agree, so often the only way to gain agreement is if:

a) countries can choose their own (unambitious) targets, and
b) the agreement to have weak enforcement powers

Question 27

What are 2 international environmental agreements that Australia is part of?

Answer 27

1) Paris Agreement
2) Montreal Protocol