L1 Introduction to economics_210118_handouts-1.pdf -...

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2021-01-18 1 Lecture 1. Environmental Economics an introduction LITERATURE: FULLERTON AND STAVINS (1998) HSW: CH. 1-2.1 DIXIT (2014) CH 1 1 Content of the lecture What is economics? Research questions methods Key insights of economics in environmental science and policies Concepts 2 What is economics? 3 Economics A Social Science: “an inquiry into the nature and causes of the wealth of nations“ Adam Smith (1776) 4 The Theory of Economics does not furnish a body of settled conclusions immediately applicable to policy. It is a method rather than a doctrine, an apparatus of the mind, a technique of thinking which helps its possessor to draw correct conclusions --- John Maynard Keynes Microeconomics Microeconomics offers a detailed treatment of individual decisions about particular commodities. Economics is about choices ” – what should be produced, how and when Given that we have limited amount of resources Examples of topics: How markets work Will higher salaries make people work more or less? Behavioural economics Are people rational? Or are there other factors that influence decisions. 6
2021-01-18 2 Macroeconomics Macroeconomics emphasizes interactions in the economy as a whole. It deliberately simplifies the individual building blocks of the analysis in order to retain a manageable analysis of the complete interaction of the economy. Macro economic topics Economic growth Employment and unemployment/the labour market Inflation International trade Business cycles 8 Ecology: Nature in the centre Research questions: How do ecosystems work? How does humanity affect ecosystems? Environmental economics: Humans in the centre Research questions: To what level should nature be used? How can the optimal level be achieved? 9 Source: Söderqvist et al. (2004) What is economic analysis? All models are wrong but some are useful Box (1976) Methods: Theoretical models Testing by empirical studies or experiments 10 The subject area of economics Every society faces a trade-off solving three basic problems of daily living: what goods and services to produce how to produce them for whom to produce them The price of oil tripled in 1973-74, and doubled again in 1979-80. It rose sharply again in 2008 and 2011 with the Arab Spring. AN EXAMPLE: OIL PRODUCTION HOW, WHAT AND FOR WHOM TO PRODUCE
2021-01-18 3 Higher oil prices allow us to see How, What and For Whom to produce They make the economy produce in a way that uses less oil (How?). reduce the demand for oil-related commodities encouraging consumers to purchase substitute commodities (What?). make the world economy produce more for OPEC and less for the big oil importers (e.g., Germany and Japan) (For Whom?). How economists think about choices In economics, it is assumed that economic agents act rationally , i.e., use all the available information when making choices.

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