L2: Inter-relationship Between The Economy and the Environment

Question 1

The environment provides 4 functions for the economy…

Answer 1

1. source of resource inputs
2. source of amenity services
3. receptacle for wastes
4. provides life support services

Question 2

2 Categories for Natural Resources

Answer 2

Stock Resources and Flow Resources

Question 3

2 types of Stock Resources

Answer 3

Renewable and Non-renewable

Question 4

2 types of non-renewable resources

Answer 4

Energy resources

Mineral resources

Question 5

3 examples of flow resources

Answer 5

solar
wind
wave/Tidal

Question 6

What is the Macro Production function?

What is the Material Balance Principal?

Answer 6

Q = f (L, K)
Output = Land and capital

‘The materials balance principle’ refers to the law of conservation of mass, which states
that matter can neither be created nor destroyed, i.e., that economic activity cannot, in a
material sense, create anything. It transforms material extracted from the environment.

Question 7

How can this Production Function be re-written to account for extraction?

What about to account for Waste?

Answer 7

Q = f (L, K , R)

Q = f (L, K , M) [M=waste]

Waste is a byproduct of production and is directly related to output, therefore can be an input.

Question 8

What is the final Output function that accounts for all the prior inconsistencies?

Answer 8

Q = f [L, K, R, M (R), A (Σm)]

emissions linked to resource use

Question 9

What is the sustainability problem?

Answer 9

How do we alleviate poverty in ways that do not affect the natural environment such that future
economic prospects suffer?

Since the 1950s and 1960s economic growth has been seen as the solution to poverty. But
can the global economic system continue to grow without undermining the natural systems
which are its foundation?

The material demands being made by the average individual have been increasing rapidly, though many are poor
▪ Redistribution is not a solution and the world’s resource base is limited and contains ecosystems which are showing signs of fragility

Question 10

The environmental impact of economic activity can be looked at in terms of: 2

Answer 10

extractions from the environment

• insertions into the environment.

Question 11

In either case, the immediate determinants of the total level of impact are:
2

Answer 11

• the size of the human population and

* the per capita impact.

Question 12

The per capita impact depends on:

2

Answer 12

• how much each individual consumes and

* the technology of production.

Question 13

What is the I=PAT identity?

What does it show?

Answer 13

I: impact, measured as mass or volume
P: population size
A: per capita affluence, in currency units
T: technology, amount of the resource used, or waste generated per unit production

Question 14

What is the linear function of output and environmental degregation?

Answer 14

e = ay

Question 15

What do we suppose a is ?

Answer 15

A linear function:

a = B0 - B1y

Question 16

what is the function for the environmental kuznets curve?

Answer 16

e =y (B0 - B1y)

e = yB0 - y^2B1

Question 17

What is required for the inverted U-shape curve?

Answer 17

▪ For B1 sufficiently small in relation to B0, the e/y relationship is an inverted U

Question 18

What is the EKC hypothesis?

Answer 18

That economic growth, past a certain threshold of income, improves the environment

Question 19

Evidence for EKC:

▪ Panayotou (1993) investigated the EKC hypothesis for __ ___ ____ and ___

▪ The 3 pollutants are measured in terms of ___ per capita. Deforestation is measured as the mean annual rate of deforestation in the mid-1980s

▪ All the fitted relationships are inverted Us. See Figure 2.10 (Perman et al., 2011, p40) for the SO2 inverted U where the turning point is $3000 per capita

There is extensive literature supporting the EKC for ____ impacts with respect to SO2 but not on a ___ impact for CO2

▪ Stern and Common (2001) present results for SO2 at a ____ level which are not consistent with the EKC hypothesis

Answer 19

Evidence for EKC:

▪ Panayotou (1993) investigated the EKC hypothesis for SO2, NOx, SPM and deforestation

▪ The 3 pollutants are measured in terms of emissions per capita. Deforestation is measured as the mean annual rate of deforestation in the mid-1980s

▪ All the fitted relationships are inverted Us. See Figure 2.10 (Perman et al., 2011, p40) for the SO2 inverted U where the turning point is $3000 per capita

There is extensive literature supporting the EKC for local and regional impacts with respect to SO2 but not on a global impact for CO2

▪ Stern and Common (2001) present results for SO2 at a global level which are not consistent with the EKC hypothesis