Economics 3220 Chapter Notes - Chapter 1: Opportunity Cost, Demand Curve, Externality

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9 Feb 2013
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Chapter 1
What is environmental economics?
Study of environmental problems using economic tools
o Scarcity, choice, opportunity cost, PPF
o Positive (objective), normative (subjective) statements
o Marginal benefits, marginal costs (demand curve)
o Consumer, producer (economic or social) surplus
o Benefit cost analysis and non-market evaluation
Focus s how our economic activities affect our environment
How can we reduce environmental impacts
Is zero pollution possible? No
o The issue is to find the optimal level of impact.
Economic approach
How do incentive affect our decisions that cause environmental degradation?
How can we modify or restructure incentives to reduce environmental
impacts?
Is profit maximizing an incentive to pollute the environment?
o For firms
o For individuals
o Government agencies
Ownership of Environment
Recognize environment as an asset that we own
An asset has current and future values
Owner has incentive to maintain it so that future values are not drastically
reduced
In natural resource economics, ownership of a resource is referred to pas
property rights
3 conditions
o Exclusivity: all benefits and costs accured to the owner
o Transferability: rights are transferrable
o Enforceability: rights cannot be encroached
Externality and Property rights
If condition is number one, exclusivity is violated, then we have external
effect or externality
o Some benefits and costs spill over to society
Example
o Smog and vehicles
Effects of exhaust smoke is affecting everyone, even those who
do not drive
Costs of driving are not Bourne to drivers
How can drivers; incentives be restructured so that less
emissions are produced
Total emissions= emission x distance x number
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