Relationsship between the economic system and the environment

Question 1

Draw the simplified traditional economic model

Answer 1

Se facit i boken

Question 2

What is the market mechanism? Draw the graph and explain how it works

Answer 2

The market mechanism illustrates the demand and supply relationships in terms of price and quantity produced/demanded

• The demand curve slope downwards, meaning as the price goes lower, people want to buy more
• The supply curve slope upwards, meaning as the price goes higher, producers wants to sell more

Equilibirium is where the demand and supply curves intersect
- The price and quantity where what consumers wants to buy equals what producers want to sell

Question 3

What is the economic functionalities of the environment?

Answer 3

1. Provides input to the production system: raw materials and other natural resources
2. Absorbs wastes and transforms them into other products
   - Like photosynthesis: absorbing CO2
3. Is a direct source of utility: provides good and services, for e.g. food, water and air

Question 4

What are environmental externalities?

Answer 4

Side effects of activities that harm/damage or benefit others, but are not included in the cost.

• E.g. pollution from a factory affects people nearby, but the factory doesnt pay for the damage

Question 5

Can environmental externalities be integrated in cost for production?

Answer 5

Yes, through rules and regulation, such as taxes

E.g. companies wll have to pay taxes for the damage they cause when polluting a certain amount of CO2

Question 6

What happens with the market mechanism when environmental externailities are integrated in the cost?

Draw the graph and explan

Answer 6

Supply curve curve is moved up vertically

The supply curve now includes both the private cost for production and the environmental cost of produciton

• This will to an adjusted equilibirum between supply and demand, as demand is lower due to more expensive products
• The quantity Q1 is therefore lower than the Q in the ideal case, while the price P1 is higher than in the ideal case

Question 7

What are the drivers of consumption?

Answer 7

• Consumption= population*consumer/capita
• Dvs depends on population size and the amount each person consumes. It determines how much we need to produce, recycle, and use overall.
• GDP (Gross domestic product)
  –> Higher GDP= higher consumption

Question 8

What is GDP?

Answer 8

Gross Domestic Product

• The total value of all goods and services produced in a country over a specific time period, usually a year
• Higher GPD= Higher consumption

Question 9

There is a paradox considering efficient energy use and increased demand of better performing high technology products, explain.

Answer 9

Even though the EU focuses on sustainability and using energy efficiently, energy consumption stays the same. This happens because people instead are consuming more goods, which balances out the energy efficiency.

so basically

Fewer, high energy consuming products –> More, energy efficient products = Same energy consumption!