Introduction to environmental economics Flashcards
What are the components of Economic System?
Organizations: Buyers, Businesses, producers, customers and sellers.
Institutions: Rules that determine how these players interact.
Definition of Economics and Environmental economics
Economics is the social science that seeks to describe the
factors which determine the production, distribution and
consumption of goods and services.
Environmental economics is a sub-field of economics that is concerned with environmental issues.
- Market failures
- Measures of prosperity/development
- Ecosystem services
- Economic approaches to sustainability
What is Free-Market Economy?
An economic system where prices for goods and services are set freely by the
forces of supply and demand and are allowed to reach their point of equilibrium without intervention by government
policy; that typically entails support for private ownership of
productive enterprises and highly competitive markets
Definition of market and free market.
A market is a medium that allows buyers and sellers of a specific good or service to interact in order to facilitate exchange
(e.g., farmers market, housing market, stock exchange).
In a free market, the transactions between buyers (consumers)
and sellers (producers) are driven by the relationship between
supply and demand.
Supply and Demand; Equilibrium Price
Supplier: Given a market price for
tomatoes, how many am I willing to produce?
Supply curve: Relationship between
product price and
quantity of product that a seller/producer is willing and able to
supply.
Buyer: Given a market price for tomatoes, how many am I willing to buy?
Demand curve: Relationship between product price and the amount that consumers are willing and able to
purchase at that given
price. Informed consumer preference.
Equilibrium Price: * Suppliers are producing
exactly as much as is
demanded by buyers* Buyers buy it at the price
that makes it worthwhile for supplier. Both suppliers and buyers are happy.
What are some of the requirements for a free market?
Large number of buyers and sellers
* Perfect information about current and future prices, products
available, etc.
* All economic agents behave rationally; producers maximize profits and consumers maximize their satisfaction or “utility”
* Market prices reflect full costs of production and consumption
*Inputs being supplied and goods being produced are individually
owned and divisible
Benefits of free market?
“In principle, markets provide us with an extraordinarily efficient mechanism for allocating society’s limited productive capacity – its stock of productive
resources, including labour, capital, technology, and natural resources – to their most highly valued uses.”
Price plays an important role in the free market:
* Communicates information about scarcity of a good
* Incentivizes behavior that tends to make the most productive use of the available scarce resources.
Invisible hand: Individuals’ efforts to pursue their own interest may
[magically] result in benefit for the society better than if you explicitly
planned for it.
Summary of Free Market
The market forces of supply and demandresult in the
equilibrium price. * If all economic agents behave rationally/self motivated(producers maximize profits and consumers maximize their satisfaction or “utility“), the free market maximizes the
overall societal welfare (i.e., invisible hand). * Numerous conditions need to be fulfilled for the free
market to work properly.
ownership of supplies is critical
