W1 Introduction & Economy_2022 Flashcards
What is the “Economy”
The Population of economic agents
What is the “Environment”
The Biosphere, the atmosphere, the geosphere
How do the Economy and the Environment interact
They interact in the provision in goods and services such as resource provision, heat, food and electric generation
Where does the environmental economist fit in?
They work out what the best use of resources for productive efficiency and the best allocation of resources for allocative efficiency
What are the two aspects to environmental economics
Management of Resources - fish, forestry etc.
Management of waste - pollution, litter etc
Why is the environment a closed system
Its a supplier of resources in the form of
Direct goods (food, water, air)
Inputs (wood, minerals, etc.)
It must assimilate our waste
The Environment is an almost closed system with aside from the sun, all inputs were sourced within. Which means we must dispose our waste as well as source the inputs “within” the system
How does the environment imposes constraints on the economy
The best example of this was climate change, if we emit CO2 indefinitely, the climate will become inhabitable and Economic practise must respect these limits
Why is it difficult to impose constraints on the economy
Sometimes there’s no choice, can’t make electricity out of thin air. The laws of physics must come into play, must be converted from an energy source i.e coal. Will produce useful (electricity) and not so useful (waste, heat). We lose some energy through conversion entropy which also must be taken into account. Trying to find the correct balance between useful output and waste with too much waste having a negative impact on the economy.
How does the first law of thermodynamics (energy cant be created or destroyed) apply to environmental economics
Putting environmental resources to use produces useful output and waste
Of importance: there are physical limits to the substitutability of inputs
How does the second law of thermodynamics (entropy) apply to environmental economics
Entropy is the amount of energy unavailable for work
There are limits to the recycling of energy
Of course, the sun provides an input
How do the first two laws set potential limits on economic activity
Fossil fuels to renewables:
Renewables are less energy dense, we need more input to create the same amount of output. Theoretically that is possible, there is more sun than we’ll ever need, but with the losses in the conversion process, will it be practical to build enough converters? [answer: yes!] There are other questions
Increase GDP, GDP means more inputs required in the production process…more waste…can we keep growing the economy if this is happening, encroaching on environmental limits?
How do we manage our use of the environment as a sink as a source of resources
(S = stock; F = flow; A = assimilation)
Sink
Various sinks have various assimilative capacities
E.g. Nitrogen in our rivers
Cumulative pollutants that are assimilated/dissipated gradually
𝑆=𝐹−𝐴
Other pollutants have no/very slow assimilative capacity
CO2 in the air; Nuclear waste, decompose over hundreds/thousands of years
𝑆=∑𝐹
How are they both direct and indirect values
Environment provides amenity value
Social well-being is the accumulation of individual utility
Each individual may have a utility function like…
𝑈_𝐴=𝑈(𝑄_1,𝑄_2,𝑄_3, 𝑋_1,𝑋_2,𝑋_3)
Q vector, air, water etc. Direct impact on utility. X vector, provision of goods and services. Indirect
Environmental provides utility directly (Q) and indirectly (X)
As economists we wish to make sure our resources are put to the best possible use.
What is the impact of trade offs on the environment
The provision of X1 can lead to a counter effect – a decline in A1
E.g. one more unit of car consumption (X1) has a positive effect on utility
E.g. one more unit of car consumption (X1) leads to one less unit of clean air (A1)
Net effect – depends on whether change utility due to change in car consumption is greater than environmental loss
What is relative scarcity
Relative scarcity: scarcity due to conflicting demands.
E.g. How do we use the water in the nearby lake, for swimming or as an input for a nearby powerplant?
