Exam #3

Question 1

Economic growth

Answer 1

an increase in the production of economic goods and services in one period of time compared with a previous period. this has to do with an increased standard of living over time

Question 2

Why do economies grow?

Answer 2

Increasing resources and productivity growth (education and research + development of new technologies increase productivity

Question 3

Growth vs. Development

Answer 3

Growth = rising GDP per capita
Development = increasing quality of life. Typically measured in the HDI: human development index

Question 4

Measures of development

Answer 4

GNP per capita, declining income inequality, improving adult literacy rates, reduction of infant mortality, reductions in illness and death rates in adults, improvement in environmental indicators

Question 5

GNP: Gross National Product

Answer 5

Monetary value measuring the total output of a country over any given time period

Usually expressed per capita

If increasing, the country is experiencing “economic growth”.

Question 6

GNI: Gross National Income Per Capita

Answer 6

Dividing up the economic cake by all population in a country

the total amount of money earend by a nation’s people and businesses

Question 7

Limits to growth

Answer 7

modern argument for limit to growth - it’s not that we’re running out of materials, but that economic activity is fundamentally changing the ecosystems and our physical environment.

This ‘system wide change’ interferes with the long-term ability of the planet to support human and other life – but not everyone accepts that this system wide change is imminent or even a problem

Question 8

GDP: Gross Domestic Product

Answer 8

measures the total domestic production adjusting for how expensive or inexpensive goods are in each country

Question 9

Criticisms of GDP

Answer 9

Inability to capture non-market transactions: GDP does not account for unpaid household work, illegal activities, and under-the-table transactions.

Limited representation of well-being: It misses environmental costs, human health impacts, and income inequality.

Skewed and flawed: As a single-number representation, it fails to account for economic and environmental sustainability.

Doesn’t adjust for distribution of goods: GDP does not consider how wealth is distributed.

Not a comprehensive measure: It does not capture all aspects of utility and well-being.

Question 10

GNI criticism

Answer 10

the division of the ‘economic cake’ is not accurately measured with GNP or GDI

Need another measure to understand income inequality

Question 11

Environmental Kuznets Curve (EKC)

Answer 11

Argues that low-income countries have little detrimental impact on the environment because of their relatively low economic activity. This impact increases with a rise in income and then, as the economy grows beyond a certain point, policies are enacted to protect the environment – so the curve goes down.

Question 12

Outcome approach (two main approaches to sustainable development)

Answer 12

Goal of non-declining utility per capita and non-declining consumption per capita

Question 13

Opportunity approach (two main approaches to sustainable development)

Answer 13

Goal to maintain a stock of capital (produced, human, social, and natural) that allows future generations to have at least as much capital as the current generation

Question 14

Weak sustainability (Weak vs. Strong Sustainability)

Answer 14

Non declining total capital of stock

K = (Kn + Kh + Kp + Ks) (total capital)

We can utilize some of the non-renewable natural capital stocks (coal, natural gas), decreasing Kn, as long as this decrease is offset by some other stock increase

Implies sustainability between capital stocks

Weak sustainability is an approach to environmental and economic policy that allows for the substitution of natural capital with human-made capital. It assumes that as long as the total capital stock remains constant or increases, future generations can still achieve a decent quality of life.

TOTAL capital

Question 15

Strong Sustainability (Weak vs. Strong Sustainability)

Answer 15

No sustainability between types of capital

Another idea is not to deplete a capital stock level below some threshold

Strong sustainability is the perspective that the various forms of capital—natural, human, social, and manufactured—are not perfect substitutes for each other. It emphasizes the importance of maintaining natural capital by preserving ecosystems and biodiversity.

Question 16

Types of Capital

Answer 16

Produced Capital (Kp)
Machinery, roads, bridges, phone systems electricity network, etc.

Human Capital (Kh)
Skills and knowledge within people. Education.

Social Capital (Ks)
Social networks that allow for mutually beneficial collective actions.

Natural Capital (Kn)
Nature. Natural materials, energy sources, water, air, plants, animals, etc.

Question 17

Substitution for types of capital

Answer 17

“Question of whether one form of captial (e.g. natural capital) may be substituted by another form of capital (e.g. human-made capital). There are two positions on this debate. Weak sustainability is based on the assumption that different forms of capital are basically substitutes.” - from internet

Question 18

Safe minimum standard

Answer 18

The safe minimum standard (SMS) approach is a collective choice process that prescribes protecting a minimum level of a renewable natural resource unless the social costs of doing so are somehow excessive or intolerably high.

Find viable level of resource (typically wildlife or habitat) that represents the minimum required stock and manage such that it will survive. This allows use when we have higher than minimum standard

Criticism: when is the cost ‘too high’ to maintain minimum standard?

Ex. of a government intervention utilized to achieve sustainability

Question 19

Trade Theory

Answer 19

trade increases global production, and also global welfare. The thought that welfare is increased by freer trade and that countries as a whole benefit from this.

Question 20

Absolute advantage

Answer 20

“Absolute advantage is an economic concept that refers to the ability of an individual, company, region, or country to produce a greater quantity of a good or service with the same quantity of inputs per unit of time, or to produce the same quantity of a good or service per unit of time using a lesser quantity of inputs, than its competitors.” - from internet

Look @ homework #4 or class worksheet

Question 21

Comparative advantage

Answer 21

“In economics, a comparative advantage occurs when a country can produce a good or service at a lower opportunity cost than another country.” - from internet

So because Food Country has a lower opportunity cost to produce Food than Cloth Country, they have the comparative advantage

Overall see an increase in production worldwide with specialization in the good that each country has a comparative advantage

Question 22

Opportunity cost

Answer 22

Trade theory - Allowing a country to specialize in producing goods for which they have the lowest opportunity cost means better welfare because better trade

Amount of food that must be sacrificed to produce an extra unit of cloth, or amount of cloth that must be sacrificed to produce an extra unit of food (look @ homework 4 and class worksheet)

Opportunity cost is defined as the loss of benefit that arises due to choosing one option over another

Question 23

Why do countries gain from trade

Answer 23

Allowing a country to specialize in producing goods for which they have the lowest opportunity cost

A country can achieve higher levels of consumption than they can without trade

Benefit is not equal for all people in a country, but overall there is benefit `

Question 24

Trade’s impact on the environment

Answer 24

Local environment: increased production = increased pollution…. so increased production in more polluting industries? Bad.

International trade: moving goods large distances leads to pollution

Question 25

Scale effect

Answer 25

it measures the increase in pollution that would be generated if the economy were simply scaled up, holding constant the mix of goods produced and production techniques

Question 26

Composition effect

Answer 26

changes in the relative size of the economic sectors following a reduction in trade barriers

Question 27

Technique effect

Answer 27

refers to changes in production methods that follow trade liberalization. This is generally from a policy shift that induces firms to adopt a technology that reduces inputs per unit of output.

Question 28

Pollution haven hypothesis ( + push effect and pull effect)

Answer 28

Basic: firms move to other countries to avoid tight environmental regulations in developed nations Push effect: firms are pushed out of countries Pull effect: firms are pulled into countries that offer weak or non-existent environmental regulations that are desperate for economic growth (“race to the bottom”) Very difficult to empirically prove due to most firms move for a variety of reasons (supply chain issues and labor costs). Evidence often seems to prove otherwise regarding this hypothesis.

Question 29

Porter hypothesis

Answer 29

“The so-called Porter hypothesis (Porter, 1991, Porter and van der Linde, 1995) asserts that firms can benefit from environmental regulations. It argues that well-designed environmental regulations stimulate innovation which, by enhancing productivity, increases firms’ private benefits. As a consequence, environmental regulations would not only be good for society, they would also be good for firms.” - from this

Question 30

Empirical evidence of trade effects of environmental regulations

Answer 30

Countries that are more open to trade adopt cleaner technologies more quickly. Increased real income is often associated with increased demand for environmental quality Greater openness to trade also encourages cleaner manufacturing (because protection always tends to shelter pollution-intensive heavy industries). Need to find better stuff for this in the slideshow

Question 31

International trade policies and organizations

Answer 31

GATT: General Agreement on Tariffs and Trade Treaty among nations to promote trade among members established in 1947 WTO: World Trade Organization Haha.... if only there was some sort of center for world trade! Not sure if it’ll fit in one tower though... maybe we’ll need two. They can be twins! Anyway, I need to go fly my airplane. Forum for trade-related negotiations among 150 members Based in Geneva Serves as dispute mediator through Dispute Settlement Body Has enforcement power and can impose sanctions One of their disputes was called “Shrimp vs. The U.S.”. That’s very funny.

Question 32

Cost benefit analysis (the economics of climate change)

Answer 32

Conservative estimates suggest that costs of stabilizing CO2e at 550 ppm passes the benefit cost test Allowing for uncertainty about climate sensitivity and risk aversion would increase the benefits of a 550 ppm target So would lowering the discount rate If this is the case, why are we doing so little?

Question 33

Mitigation

Answer 33

Mitigation: Reducing Emissions Long-term goal of keeping the increase in global average temperature to well below 2°C above pre-industrial levels; to aim to limit the increase to 1.5°C, since this would significantly reduce risks and the impacts of climate change; on the need for global emissions to peak as soon as possible, recognizing that this will take longer for developing countries; to undertake rapid reductions thereafter in accordance with the best available science I don’t know why these damn bullet points are so BIG

Question 34

Uncertainty and risk assessment

Answer 34

Uncertainty * Climate impacts * Political motivation

Question 35

International agreements: goals and problems reaching agreements

Answer 35

Paris Climate Conference Paris Climate Agreement Key Elements Mitigation Transparency – scientists coming forward with more current results every five years Adaptation – countries imposing regulations/laws adapting Loss and Damage – acknowledges loss and damage associated with CC Problems reaching agreement US joined, left in 2017, rejoined in 2021, and then left for a second time in 2025 Challenges of international cooperation Climate is a global public good. We all benefit from it and we will all suffer if we destroy it. * Climate also can suffer from ‘free riders’. – Some countries that do not control their share of carbon emissions but benefit from other countries controls. * Complicating this is the economic differences between developed and developing countries.

Question 36

Taxes (taxes versus cap and trade system)

Answer 36

– A tax that is placed on the per unit emissions of CO2. Typically this this a tax that is fixed but can be increasing or declining based on quantity.`

Question 37

Cap and trade (tax versus cap and trade system)

Answer 37

– An agency issues permits that allows for a specific unit of CO2 to be emitted. These permits can be traded between companies. The issuing agency can decrease the number of permits to control CO2. The only difference is the distributional implications. * The cost to the firm is lower for carbon cap-and-trade. * The government receives tax revenue with a carbon tax. * Both policies are preferred over technological or output standards (i.e., command and control regulation).