EC238 Chapter Notes - Chapter 1: Sport Utility Vehicle, Natural Capital, Externality

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3 Oct 2013
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EC238 Chapter 1 What is Environmental Economics? Week 1
What is Environmental Economics?
-Environmental economics is the study of environmental problems with the perspective and analytical
ideas of economics.
-Environmental economics draws from both sides, but primarily from microeconomics.
-Environmental economics focuses on how economic activities affect our natural environment the
atmosphere, water, land, and an enormous variety of living species
-We ask:
-Why don’t people take into account the effects of their economic activity on the natural
environment?
-What inhibits economic systems from using its resources wisely and efficiently to protect the
sustainability of our plant and people’s livelihoods over time?
-Environmental economics examines these questions by focusing on was society can reduce its
degradation of the natural environment.
-Economic efficiency remains the central criterion for evaluating outcomes and policies
-Economic efficiency is all about using resources wisely
-Equity is about how the economic ‘pie’ is divided up
-Horizontal equity treats similarly situated people the same way
-Vertical equity refers to how a policy impinges on people who are in different circumstances, in
particular on people who have different income levels
-Intergenerational equity looks at whether future generations have the same opportunities as current
ones
The Economic Approach
-Environmental degradation comes about from human behaviour that is unethical or immoral.
-‘People pollute because it is the cheapest way they have of solving a certain very practical problem:
how to dispose of the waste products remaining after production and consumption of a good’
-People make decisions on production, consumption, and disposal within a certain set of economic and
social institutions; these institutions structure the incentives that lead people to make decisions in one
direction and not in another
-An incentive is something that attracts or repels people and leads them to modify their behaviour in
some way
-An economic incentive is something in the economic world that leads people to channel their efforts at
production and consumption in certain directions
-Any system will produce destructive environmental impacts if the incentive within the system are not
structured to avoid them
-Lack of ownership rights to environmental resources means that there are few incentives to take the
environmental consequences of or actions into account
Externalities and Property Rights
-Property rights or the lack thereof are crucial in understanding why we have today’s environmental
problems
-Ex. SUV emissions vs. dog poop you can talk to your neighbour about the dog poop but you cannot
jump in front of an SUV and say ‘stop you are polluting the air’
Sustainability of our Environment and Economy
Basic Issues
-A sustainable economy is one that has the ability to allow people’s well-being to either rise over time or
at least remain constant
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Document Summary

Environmental economics is the study of environmental problems with the perspective and analytical ideas of economics. Environmental economics draws from both sides, but primarily from microeconomics. Environmental economics focuses on how economic activities affect our natural environment the atmosphere, water, land, and an enormous variety of living species. Environmental economics examines these questions by focusing on was society can reduce its degradation of the natural environment. Economic efficiency remains the central criterion for evaluating outcomes and policies. Economic efficiency is all about using resources wisely. Equity is about how the economic pie" is divided up. Horizontal equity treats similarly situated people the same way. Vertical equity refers to how a policy impinges on people who are in different circumstances, in particular on people who have different income levels. Intergenerational equity looks at whether future generations have the same opportunities as current ones. Environmental degradation comes about from human behaviour that is unethical or immoral.

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