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APES Chapter 23

Economics, Environment, and Sustainability

Raychel Ornduff

on 17 May 2013

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Transcript of APES Chapter 23

Economics, Environment,
and Sustainability APES Chapter 23 Optimum levels and economic tools to deal with environmental problems Full-cost pricing Cost-benefit analysis: Products cost a lot more than we think Optimum pollution and resource levels Free Market Economies. Economic values Debate over economic growth How are Economic Systems
Related to the Biosphere? An economic system is a social institution through which goods and services are produced, distributed, and consumed to satisfy people's needs and wants, ideally in the most efficient way possible.
In a free market economic system (US), the economy is governed by the competitive interactions of supply, the amount of a good or service available, demand, the amount of the good or service the people want, and price, the market cost of a good or service. The government has very little control of these interactions.
In a truly free market economy: no company or small groups can control the prices of any good or service, the market prices of goods and services would include all of their direct and indirect costs, and consumers would be provided full information about the beneficial/harmful effects of the goods and services available to them. There are three arguments present over the limitation of economic growth: Economists have developed ways to estimate the economic values not included in the market prices of goods and services, otherwise known as nonuse values. These values are existence values, aesthetic values, and option values. There are two optimum levels for various kind of pollution for two reasons:
1. The cost of pollution control goes up for each additional unit of a pollutant removed from the environment.
2. Natural processes such as dilution and chemical cycling can reduce the levels of some pollutants. Used to make economic decisions by an analysis of the cost effectiveness of different alternatives in order to see whether the benefits outweigh the costs. The market prices of goods and service does not include most of the indirect costs of harm to society and the environment associated with its production; it only includes the costs of raw materials, labor, shipping, and a markup for profit. Because most of these costs do not include the short-term and long-term harmful effects on today's and future generations, most do no connect them to the good or service. Some economists believe that the harmful external costs should be included in the market prices of goods and service, the full-cost price. It's believed that the failure to include these costs leads to some of the major causes of the environmental problems we face. It, however, is not widely used.
Why? Economic Systems are supported by three types of resources Natural Capital: Includes resources and services produced by
the earth's natural processes, which support all economies and
all life.
Human Capital: Includes people's physical and mental talents
that provide labor, organizational and management skills, and
Manufactured Capital: Refers to items such as machinery,
equipment, and factories made from natural resources with the
help of human resources. The red line is the
demand, showing how much consumers will pay. The blue line shows the supply of the good or service. The point at which the curves interest is called the equilibrium
point where the supplier's price matches what buyers are willing to pay. In order for the economy to grow, economic growth must occur, or an increase in a nation's capacity to provide goods and services to the population. In the midst of economic growth, analysts are putting greater emphasis on environmentally stable economic development in order to encourage environmentally beneficial and more sustainable forms of economic development and to discourage environmentally harmful and unsustainable forms of economic growth. These three types of resources are used to produce goods and services as well as the biologically harmful results produced through consumption. Neoclassical economists

Ecological economists

Environmental economists Neoclassical economists View natural resources as important but not indispensable because of our ability to find substitutes.
Believe economic growth is necessary for providing jobs and profits for businesses.
View the earth's natural capital as a subset or part of a human economic system.
Believes the potential for economic growth is essentially unlimited.
EX: Alfred Marshall and Milton Friedman Ecological economists Points out that there are no substitutes for many vital natural resources such as air, water, fertile soil, and biodiversity.
View human economic systems as subsystems of the biosphere that depend heavily on the earth's irreplaceable resources.
Believe conventional economic growth eventually will become unsustainable.
EX: Herman Daly and Robert Constanza Environmental economists The middle ground in the debate.
Agree with the model proposed by ecological economists
Argue that some forms of economic growth are not sustainable and should be discourages.
They accomplish this by fine-tuning existing economic systems and tool instead of redesigning some of them to be more sustainable. Existence values A monetary value placed on a resource such as an old-growth forest or endangered species just because it exists, even though we may never see it or use it. Aesthetic values A monetary value placed on a forest, species, or a part of nature solely because of it's beauty. Option values Also called a bequest.
Based on the willingness of people to pay to protect some forms of natural capital for use by future generations. Estimating the future value of a resource is controversial To determine the value of a resource, economists, businesses, and investors use a tool known as the discount rate. The discount rate is an estimate of a resource's future economic value compared to its present value. It's based on the idea that today's value of a resource may be higher than its value in the future and its future value must be discounted. The size of the discount rate is determined by how a resource is used or managed. The value of these rates are controversial. Some believe that inflation may reduce the value of their future earnings, that changes in consumer preferences could make a product of resource obsolete, and that high discount rates may encourage rapid exploitation of resources to make up for its loss of value in the future. Optimum level These reasons help to make pollution cleanup of a certain amount of pollution affordable but eventually, the cost of additional pollution control is greater than the harmful costs of the pollution to the earth. This point is called the optimum level for cleanup. Advantages Compares costs and benefits using equal terms
Provides a clear indication of net cost or benefit of a specific area or regulation, helping justify decisions at various levels
Simplifies complex concepts and processes
Can be carried out at many levels (local, regional, national, international) Limitations Can be difficult to determine accurately the discount rate of future costs and benefits, as well as indirect impacts
Often requires non-market valuation methods with varying degrees of complexity and accuracy
Costs are easier to estimate than benefits
Can be a time-consuming and expensive process
Does not always consider the source of the costs and benefits, needs to consider factors such as environmental justice and indirect impacts
Does not usually consider questions of environmental justice and how costs and benefits are distributed across different groups GDP vs. GPI Gross Domestic Product (GDP): The annual market value of all goods and services produced by all firms and organizations, foreign and domestic, operating within a country. Genuine Progress Indicator (GPI): The GDP plus the estimated value of beneficial transactions that meet basic needs minus harmful and social costs. (per capita: GPI for a country divided by that country's population at mid-year.) Comparing GDP to GPI from 1950-2000's Comparing GDP and GDI from 1950-2000's 1. The producers of harmful products would have to change more, and could potentially go out of business.
2. It is difficult to estimate many environmental and health costs. (However making the best possible estimates would be far better than continuing with the misleading unsustainable system of today.
3. Many environmentally harmful businesses have used their political and economic power to obtain environmentally harmful government subsidies and tax breaks that make their profits. Full-cost pricing isn't widely used for 3 reasons: High-throughput economy: The economic system in most advanced industrialized countries, in which ever-increasing economic growth is sustained by maximizing the rate at which matter and energy resources are used.
Low-throughput economy: Economy based on working with nature by recycling and reusing discarded matter; preventing pollution; conserving matter and energy resources by reducing unnecessary waste and use and building things that are easy to recycle, reuse, and repair.
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