Midterms: Economics of Sustainability Flashcards
Essential for overall impact understanding.
Full-Cost Pricing
Pricing Method; includes environmental & health costs of production and usage of
goods/services in their market prices
Full-Cost Pricing
Informs consumers about the environmental impacts of their lifestyle; allows them to
make more informed decisions about the goods/services they use.
Full-Cost Pricing
3 Kinds of Pricing
- Private Costs
- External Costs
- Social Costs
Kinds of Costs:
- Direct costs to producers
Private Cost
Kind of Cost:
- Reffered to as Accounting Costs/ Explicit Costs
Private Cost
Kind of Cost:
- Refers to the cost of production i.e. direct materials, labor, and overhead
Private Cost
Kind of Cost:
- are what individuals or businesses pay directly
Private Cost
Kind of Cost:
- Costs to third parties from production
External Cost
Kind of Cost:
- hidden costs that affect everyone
External Cost
Kind of Cost:
- Refers to the spillover effects of certain actions
External Cost
Kind of Cost:
- Sum of private costs and external costs
Social Cost
3 Ways How to Account of External Costs
- Survey Approach
- Engineering Approach
- Combined Approach
Account of External Cost:
- Gathers affected parties’ data (risk of biased estimates)
- The drawback of this approach is the strong incentive not to be truthful
- Solicits responses from those who incur the expenses and are presumably most
knowledgeable about them, to disclose the extent of the costs
Survey Approach
Account of External Cost:
- Uses technology for estimates (may not reflect specific situations)
- Uses general engineering information to catalog the possible technologies that
could be used to meet the objective and to estimate the costs of purchasing and
using those technologies
- These estimates may not approximate the actual cost of any particular firm
- Unique circumstances may cause the costs of that firm to fluctuate, in short, may
not be typical.
Engineering Approach
Account of External Cost:
- Merges both methods for better accuracy.
Combined Approach
2 Benefits of Consumption
- Tangible Benefit (goods/services)
- Intangible Benefit (feelings like joy or security)
3 Measures Taken by the Government
- Tax Incentives
- Taxes on Waste
- Production Quotas
Measure taken by the Government:
- generated by production.
Taxes on Waste
Measures taken by the Government:
- to limit environmental damage.
Production Quotas
General Impact:
- principle ensures businesses account for environmental
costs.
“Polluter Pays” Principle
