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EC238 (54)
Karen Huff (33)
Chapter 1

Chapter 1 EC238.docx

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Wilfrid Laurier University
Karen Huff

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 me
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