Unit 20: Economics Of The Environment Flashcards
What is the tragedy of the commons?
Overuse of a common resource due to individual incentives ignoring external costs.
Why do common resources get overused?
Because they are rival and non-excludable, leading to depletion.
What are three solutions to the tragedy of the commons?
Taxes, tradable licenses, and assigning property rights.
Why is climate change especially hard to solve?
Because it involves stock pollutants, is potentially irreversible, and requires global cooperation.
What is the abatement cost curve?
It ranks abatement methods by cost from most to least cost-effective.
What determines the optimal level of abatement?
Where MRS (society’s willingness to pay) equals MRT (cost-effectiveness of abatement).
What is a price-based environmental policy?
A tax or subsidy that changes the price of polluting activities.
What is a quantity-based environmental policy?
A regulation or cap that directly limits emissions or activities.
What is cap-and-trade?
A system where a pollution cap is set and permits are traded among firms.
What is a key risk of cap-and-trade systems?
Price collapse if the cap is too loose, reducing incentive to abate.
What is contingent valuation?
A survey-based method to estimate willingness to pay for environmental goods.
What is hedonic pricing?
Using market data (like housing prices) to infer values of environmental quality.
How does technology affect abatement?
It increases MRT, making abatement cheaper and expanding the feasible set.
What are innovation rents?
Profits from pioneering new technology, which incentivize green innovation.
Why is international climate cooperation hard?
Because of the free-rider problem and conflicting national interests.
What is discounting in environmental economics?
Valuing future costs and benefits less than present ones.
What is the Environmental Kuznets Curve?
A theory that pollution first rises, then falls with income growth.
Why does pollution fall at high income levels?
Because citizens value environmental quality more and can afford abatement.
Does economic growth automatically improve the environment?
No, policy and institutions determine outcomes.
What role do policies play in environmental outcomes?
They shape incentives and determine whether abatement occurs.
