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Environmental economicsPart A: Multiple-choice Questions (30 points)

1. Which one of the following statements comparing developed and developing countries is false?

Developed countries are more able to afford environmental protection systems

Developing countries are more subject to technological lock-in

Developed countries have more capital stock

Developing countries have greater need of economic development

Developing countries may have greater choice about development paths

2. The definition that sustainable development “meets the needs of the present without    compromising the ability of future generations to meet their own needs” was presented by…

The World Bank

The International Monetary Fund

The World Commission on Environment and Development

The Global Environmental Facility

The U.S. Environmental Protection Agency

3.Which of the following statements is true?

1)        The U.S. has the world’s highest total energy consumption

2)        China’s per capita energy use is about 50% of U.S. per capita use

3)        China’s total energy use is about 50% of U.S. total energy use

4)        India’s total energy consumption is now equal to China’s

5)        China’s per capita energy use is less than 25% of U.S. per capita energy use

4. Which one of the following organizations does not promote economic development?

World Trade Organization

International Monetary Fund

World Bank

Global Environmental Facility

Environmental Protection Agency

 5.  The package of conditions linked to loans to developing countries to promote market-oriented economic reform is called ...

Structural adjustment

Throughput

Dematerialization

Entropy

Technological lock-in

6. Which one of the following is not a negative environmental effect of structural adjustment?

1)        Increased consumption of resources

2)        Greater pollution pressures

3)        Reduced subsidies lead to increased rates of pesticide use

4)        Reduction in natural capital stocks

5)        Weakening of environmental institutional capacity

7. Which one of the following statements best describes the World Bank’s environmental

record?

1)        The World Bank has always taken leadership in protecting the environment

2)        The World Bank considers that the environment is not relevant to its development mission

3)        The World Bank has ignored critics of its environmental polices

4)        The World Bank has responded to criticism by expanding its environmental lending

5)        The World Bank has recently been renamed as the World Trade Organization to more accurately reflect its mission

8. Which one of the following statements is false?

1)        The World Bank currently screens all projects for potential environmental impacts

2)        World Bank loans are often coupled with grants from other organizations

3)        World Bank funding for environmental projects has steadily increased since 1994

4)        World Bank projects include both a “brown” and a “green” agenda

5)        World Bank loans must eventually be repaid

9. Which of the following was created in 1990 to provide grants for global environmental projects?

World Trade Organization

World Bank

International Monetary Fund

Global Environmental Facility

United Nations Development Program

10. Which one of the following statements about the Global Environmental Facility is false?

A principle of the GEF is that the incremental costs of environmental protection should be borne by the global community

The GEF provides grants rather than loans

Pairing GEF grants with World Bank loans can risk increasing resource exploitation

GEF funding includes projects related to climate change and biodiversity loss

The GEF is administered by the U.S. Environmental Protection Agency

11. What principle states that natural systems should remain intact whenever possible?

Weak sustainability

Strong sustainability

Logistic growth

Exponential growth

Technological lock-in

12. The historical growth of a steady-state economy would appear on a graph as...

Linear growth

Logistic growth

Exponential growth

Exponential decline

Logistic decline

13. The concept of a steady-state economy would involve all of the following except…

Limits on material consumption

Meeting basic needs such as food, housing, and medical care

Growth in services, arts, communications, and education

Compulsory population control

Maintenance of ecosystem functions

14. The standard view of economic growth supports which type of growth pattern?

Logistic

Linear

Quadratic

Exponential

Bell-shaped

15. Which one of the following policies would not promote sustainable development?

Green taxes

Application of industrial ecology

Increasing agricultural subsidies

Accelerating development of renewable energy

Increased efficiency in transportation

Part B: Discussion Questions (MS Word document)

Please complete the following discussion questions (one paragraph typed on each Discussion Question).  A paragraph must contain three sentences. Please use Times New Roman, one inch margins, and 12 point font.

Discussion Question # 1 (page 527; 4 points)

Discussion Question # 2 (page 527; 3 points)

Discussion Question # 3 (page 527; 3 points)

Part C: Environmental Data Analysis; Table 21.1, page 512 (MS Word document)

Compare Japan’s environmental data to France’s (one typed paragraph which must contain three sentences. Please use Times New Roman, one inch margins, and 12 point font (3 points).

Compare United States’ environmental data to India’s (one typed paragraph which must contain three sentences. Please use Times New Roman, one inch margins, and 12 point font (3 points).

Rank selected countries in terms of energy consumption per capita and C02 emissions per capita (4 points).

1 Attachment
Environmental and Natural Resource Economics A Contemporary ....pdf
Environmental and Natural Resource Economics Environmental and Natural Resource
Economics
A Contemporary Approach Third Edition
Jonathan M. Harris and Brian Roach First published 2013
by M.E. Sharpe
Published 2015
by Routledge
2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN
711 Third Avenue, New York, NY 10017, USA
Routledge is an imprint of the Taylor & Francis Group, an informa business
Copyright © 2013 Taylor & Francis. All rights reserved.
No part of this book may be reprinted or reproduced or utilised in any form or
by any electronic, mechanical, or other means, now known or hereafter
invented, including photocopying and recording, or in any information storage
or retrieval system, without permission in writing from the publishers.
Notices
No responsibility is assumed by the publisher for any injury and/or damage to
persons or property as a matter of products liability, negligence or otherwise, or
from any use of operation of any methods, products, instructions or ideas
contained in the material herein.
Practitioners and researchers must always rely on their own experience and
knowledge in evaluating and using any information, methods, compounds, or
experiments described herein. In using such information or methods they
should be mindful of their own safety and the safety of others, including
parties for whom they have a professional responsibility.
Product or corporate names may be trademarks or registered trademarks, and
are used only for identification and explanation without intent to infringe.
Library of Congress Cataloging-in-Publication Data
Harris, Jonathan M.
Environmental and natural resource economics: a contemporary approach /
by Jonathan Harris & Brian Roach.—3rd ed.
p. cm.
Includes bibliographical references and index.
ISBN 978-0-7656-3792-5 (hardcover: alk. paper) 1. Environmental economics. 2.
Natural
resources. 3. Environmental policy. I. Title.
HC79.E5H356 2013
333.7—dc22 2012045232
ISBN 13: 9780765637925 (hbk) Contents
Note to the Reader
Key Terms are bolded in the text, with a sidebar definition.
All Key Terms in a chapter are listed at the end of the chapter, and the definitions are
collected in the Glossary, noting the chapters in which they appear.
PREFACE TO THE THIRD EDITION
PART I. INTRODUCTION: THE ECONOMY AND THE ENVIRONMENT
1. CHANGING PERSPECTIVES ON THE ENVIRONMENT 1.1 Economics and the Environment 1.2 A Framework for Environmental Analysis 1.3 Environmental Microeconomics and Macroeconomics 1.4 A Look Ahead
2. RESOURCES, ENVIRONMENT AND ECONOMIC DEVELOPMENT 2.1 A Brief History of Economic Growth and the Environment 2.2 A Summary of Recent Growth 2.3 The Future of Economic Growth and the Environment 2.4 Sustainable Development
PART II. ECONOMIC ANALYSIS OF ENVIRONMENTAL ISSUES
3. THE THEORY OF ENVIRONMENTAL EXTERNALITIES 3.1 The Theory of Externalities 3.2 Welfare Analysis of Externalities 3.3 Property Rights and the Environment
Appendix 3.1: Supply, Demand, and Welfare Analysis
Appendix 3.2: Externality Analysis: Advanced Material
4. COMMON PROPERTY RESOURCES AND PUBLIC GOODS 4.1 Common Property, Open Access, and Property Rights 4.2 The Environment as a Public Good 4.3 The Global Commons
5. RESOURCE ALLOCATION OVER TIME 5.1 Allocation of Nonrenewable Resources 5.2 Hotelling's Rule and Time Discounting
6. VALUING THE ENVIRONMENT 6.1 Total Economic Value 6.2 Overview of Valuation Techniques 6.3 Revealed Preference Methods 6.4 Stated Preference Methods 6.5 Cost-Benefit Analysis 6.6 Conclusion: The Role of Cost-Benefit Analysis in Policy Decisions
Appendix 6.1: Advanced Material on Valuation Methods
Appendix 6.2: Using Excel to Perform Present Value Calculations
PART III. ECOLOGICAL ECONOMICS AND ENVIRONMENTAL ACCOUNTING
7. ECOLOGICAL ECONOMICS: BASIC CONCEPTS 7.1 An Ecological Perspective 7.2 Natural Capital 7.3 Issues of Macroeconomic Scale 7.4 Long-Term Sustainability 7.5 Energy and Entropy
8. NATIONAL INCOME AND ENVIRONMENTAL ACCOUNTING 8.1 Greening the National Income Accounts 8.2 Environmentally Adjusted Net Domestic Product 8.3 Adjusted Net Saving 8.4 The Genuine Progress Indicator 8.5 The Better Life Index 8.6 Environmental Asset Accounts 8.7 The Future of Alternative Indicators
Appendix 8.1: Basic National Income Accounting
PART IV. POPULATION, AGRICULTURE, AND THE ENVIRONMENT
9. POPULATION AND THE ENVIRONMENT 9.1 The Dynamics of Population Growth 9.2 9.3 Predicting Future Population Growth
The Theory of Demographic Transition 9.4 Population Growth and Economic Growth 9.5 Ecological Perspectives on Population Growth 9.6 Population Policies for the Twenty-First Century
10. AGRICULTURE, FOOD, AND ENVIRONMENT 10.1 Feeding the World: Population and Food Supply 10.2 Trends in Global Food Production 10.3 Projections for the Future 10.4 Agriculture's Impact on the Environment 10.5 Sustainable Agriculture for the Future
PART V. ENERGY AND RESOURCES
11. NONRENEWABLE RESOURCES: SCARCITY AND ABUNDANCE 11.1 The Supply of Nonrenewable Resources 11.2 Economic Theory of Nonrenewable Resource Use 11.3 Global Scarcity or Increasing Abundance? 11.4 Environmental Impacts of Mining 11.5 The Potential for Recycling
12. ENERGY: THE GREAT TRANSITION 12.1 Energy and Economic Systems 12.2 Evaluation of Energy Sources 12.3 Energy Trends and Projections 12.4 Energy Supplies: Fossil Fuels 12.5 The Economics of Alternative Energy Futures 12.6 Policies for the Great Energy Transition
13. RENEWABLE RESOURCE USE: FISHERIES 13.1 Principles of Renewable Resource Management 13.2 Ecological and Economic Analysis of Fisheries 13.3 The Economics of Fisheries in Practice 13.4 Policies for Sustainable Fisheries Management
14. ECOSYSTEM MANAGEMENT-FORESTS 14.1 The Economics of Forest Management 14.2 Forest Loss and Biodiversity 14.3 Politics for Sustainable Forest Management 14.4 Conclusion: Reconciling Economic and Ecological Principles
15. WATER ECONOMICS AND POLICY 15.1 Global Supply and Demand for Water 15.2 Addressing Water Shortages 15.3 Water Pricing 15.4 Water Markets and Privatization
PART VI. POLLUTION: IMPACTS AND POLICY RESPONSES
16. POLLUTION: ANALYSIS AND POLICY 16.1 The Economics of Pollution Control 16.2 Policies for Pollution Control 16.3 The Scale of Pollution Impacts 16.4 Assessing Pollution Control Policies 16.5 Pollution Control Policies in Practice
17. GREENING THE ECONOMY 17.1 The Green Economy: Introduction 17.2 The Relationship between Economy and Environment 17.3 Industrial Ecology 17.4 Does Protecting the Environment Harm the Economy? 17.5 Creating a Green Economy
18. GLOBAL CLIMATE CHANGE 18.1 Causes and Consequences of Climate Change 18.2 Responses to Climate Change 18.3 Economic Analysis of Climate Change
19. GLOBAL CLIMATE CHANGE: POLICY RESPONSES 19.1 Adaptation and Mitigation 19.2 Climate Change Mitigation: Economic Policy Options 19.3 Climate Change: The Technical Challenge 19.4 Climate Change Policy in Practice 19.5 Economic Policy Proposals 19.6 Conclusion
PART VII. ENVIRONMENT , TRADE, AND DEVELOPMENT
20. WORLD TRADE AND THE ENVIRONMENT 20.1 Environmental Impacts of Trade 20.2 Trade and Environment: Policy and Practice 20.3 Trade Agreements and the Environment 20.4 Strategies for Sustainable Trade 21. INSTITUTIONS AND POLICIES FOR SUSTAINABLE DEVELOPMENT 21.1 The Concept of Sustainable Development 21.2 The Economics of Sustainable Development 21.3 Reforming Global Institutions 21.4 New Goals and New Production Methods
GLOSSARY
INDEX
ABOUT THE AUTHORS Preface to the Third Edition
The third edition of Environmental and Natural Resource Economics: A Contemporary
Approach maintains its essential focus on making environmental issues accessible to a
broad range of students. The text is a product of twenty years of teaching
environmental and natural resource economics at the undergraduate and graduate
levels. It reflects the conviction that environmental issues are of fundamental
importance and that a broad approach to understanding the relationship of the human
economy and the natural world is essential.
Typically, students come to an environmental economics course with an awareness
that environmental problems are serious and that local, national, and global policy
solutions are needed. Some students may be interested in careers in environmental
policy; others in gaining an understanding of issues that are likely to be relevant in
their careers, personal lives, and communities. In either case, the current importance of
the topics gives the course a special spark of enthusiasm that is a heaven-sent boon to
any instructor trying to breathe life into marginal cost and benefit curves.
There is a distinct danger, however, that this initial enthusiasm can be dampened
rather quickly by the use of a strictly conventional approach to environmental
economics. One major limitation of this approach is its almost exclusive use of
neoclassical microeconomic techniques. The standard microeconomic perspective
strongly implies that anything of importance can be expressed in terms of price—even
though many important environmental functions cannot be fully captured in dollar
terms. Also, this perspective makes it difficult to focus on the inherently “macro”
environmental issues such as global climate change, ocean pollution, ozone depletion,
population growth, and global carbon, nitrogen, and water cycles.
For these reasons, the authors have developed an alternative approach that draws on
the broader perspective that has come to be known as ecological economics, in
addition to presenting standard economic theory. In our view, these two approaches
are complementary rather than in conflict. Many elements of standard microeconomic
analysis are essential for analyzing resource and environmental issues. At the same
time, it is important to recognize the limitations of a strictly cost-benefit approach and
to introduce ecological and biophysical perspectives on the interactions of human and natural systems. NEW TO THE THIRD EDITION
The third edition of Environmental and Natural Resource Economics: A Contemporary
Approach has been updated in response both to developments in the world of
environmental policy and to comments and suggestions based on classroom use. New
material in the third edition includes:
a new chapter on water economics, including analysis of water demand
management, water pricing, and water privatization
a new chapter on the relationship between environmental protection and the
economy, including analysis of decoupling output from resource and energy
inputs and policies to promote a green economy
new scientific evidence on climate change and a new chapter on global climate
change policy, including technological potential, abatement costs, and
proposals for an Earth Atmospheric Trust and Greenhouse Development Rights
more on the application of economic valuation techniques, including
evaluating new mercury regulations, valuing life, and estimating the impacts of
the Gulf oil spill
new material on “green” national income accounting, including adjusted net
savings, the Genuine Progress Indicator, the Better Life Index, and
environmental asset accounts
new sections on recent population developments, including changing fertility
rates, projections for 2050 to 2100, and the human ecological footprint
changing projections for food supply and the impact of the “food crisis,” rising
meat consumption, and biofuels
new data on rising prices for minerals and new projections for fossil-fuel
supply limits, discussion of fossil-fuel subsidies, and the potential for a
transition to renewable energy
All data series have been updated to reflect recent trends. New appendices have
been added to chapters dealing with formal analysis, providing greater depth in
analytical techniques. ORGANIZATION OF THE TEXT
The text is structured so as to be appropriate for a variety of courses. It assumes a
background in basic microeconomics and can be used in an upper-level undergraduate
course or a policy-oriented master’s-level course. Part I provides a broad overview of
different approaches to economic analysis of resources and environment and of the
fundamental issues of economy/environment interactions. Part II covers the basics of
standard environmental and resource economics, including the theory of externalities,
resource allocation over time, common property resources, public goods, and
valuation. Part III offers an introduction to the ecological economics approach,
including “greening” national accounts and economic/ecological modeling.
Parts IV and V apply these analytical approaches to fundamental environmental and
resource issues. Part IV focuses on population, agriculture, and the environment,
reviewing different theories of population, giving an overview of the environmental
impacts of world agricultural systems and discussing policy responses to population
and food supply issues. Part V deals with the economics of renewable and
nonrenewable resources at both the microeconomic and macroeconomic levels.
Part VI provides a standard analysis of the economics of pollution control, a new
chapter on the relationship between environmental protection and the economy, and
two chapters that address global climate change. Part VII brings together some of the
themes from the specific topics of the earlier parts in a consideration of trade and
development issues. PEDAGOGICAL AIDS FOR STUDENTS AND
INSTRUCTORS
Each chapter has discussion questions, and the more quantitative chapters have
numerical problem sets. Key terms in each chapter are compiled in an extensive
glossary. Useful Web sites are also listed. Instructors and students are urged to make
full use of the text’s supporting Web sites at http://www.gdae.org/environ-econ.
The instructor Web site includes teaching tips and objectives, answers to text
problems, and test questions. The student site includes chapter review questions and
Web-based exercises and will be updated periodically with bulletins on topical
environmental issues. ACKNOWLEDGMENTS
The preparation of a text covering such an extensive area, in addition to the supporting
materials, is a vast enterprise, and our indebtedness to all those who have contributed
to the effort is accordingly great. Colleagues at the Global Development and
Environment Institute have supplied essential help and inspiration. Research associate
Anne-Marie Codur cowrote the original version of Chapter 18 on global climate
change and contributed material to the chapters on population and sustainable
development. Especially significant has been the unwavering support of the Institute’s
codirector, Neva Goodwin, who has long championed the importance of educational
materials that bring broader perspectives to the teaching of economics.
Our colleagues Timothy Wise, Frank Ackerman, Kevin Gallagher, Julie Nelson, Liz
Stanton, and Elise Garvey provided insights on specific issues. Essential research
assistance was given by Josh Uchitelle-Pierce, Adrian Williamson, Baoguang Zhai,
Maliheh Birjandi Feriz, Lauren Jayson, Reid Spagna, and Mitchell Stallman, in addition
to work by Dina Dubson and Alicia Harvey for the previous edition. Lauren Denizard
and Erin Coutts offered administrative support.
The book has greatly benefited from the comments of reviewers including Kris
Feder, Richard Horan, Gary Lynne, Helen Mercer, Gerda Kits, Gina Shamshak, Jinhua
Zhao, John Sorrentino, Richard England, Maximilian Auffhammer, and Guillermo
Donoso and reflects much that we have learned from the work of colleagues at Tufts
University and elsewhere, especially William Moomaw, William Wade, Sheldon
Krimsky, Molly Anderson, Ann Helwege, Kent Portney, Kelly Gallagher, Paul Kirshen,
and Richard Wetzler. Others whose work has provided special inspiration for this text
include Herman Daly, Richard Norgaard, Richard Howarth, Robert Costanza, Faye
Duchin, Glenn-Marie Lange, John Proops, and many other members of the
International Society for Ecological Economics. Fred Curtis, Rafael Reuveny, Ernest
Diedrich, Lisi Krall, Richard Culas, and many other faculty members at colleges in the
United States and worldwide have provided valuable feedback from class use. Our
editor at M.E. Sharpe, George Lobell, provided support and advice throughout, and
Stacey Victor guided us through the production process. Finally we thank the many
students we have had the privilege to teach over the years—you continually inspire us
and provide hope for a better future.
Jonathan M. Harris and Brian Roach Global Development and Environment Institute
Tufts University
[email protected]
[email protected] Environmental and Natural Resource Economics PART ONE
INTRODUCTION
THE ECONOMY AND THE ENVIRONMENT CHAPTER 1
Changing Perspectives on the
Environment
CHAPTER 1 FOCUS QUESTIONS
What major environmental issues do we face in the twenty-first century?
How can economics help us understand these issues?
How do economic and ecological perspectives differ, and how can we
combine them to address environmental issues? 1.1 ECONOMICS AND THE ENVIRONMENT
Over the past four decades, we have become increasingly aware of environmental
problems facing communities, countries, and the world. During this period, natural
resource and environmental issues have grown in scope and urgency. In 1970, the
Environmental Protection Agency was created in the United States to respond to what
was at that time a relatively new public concern with air and water pollution. In 1972,
the first international conference on the environment, the United Nations Conference
on the Human Environment, met in Stockholm. Since then, growing worldwide
attention has been devoted to environmental issues.
In 1992 the United Nations Conference on Environment and Development (UNCED)
met in Rio de Janeiro, Brazil, to focus on major global issues, including depletion of the
earth’s protective ozone layer, destruction of tropical and old-growth forests and
wetlands, species extinction, and the steady buildup of carbon dioxide and other
“greenhouse” gases causing global warming and climate change. Twenty years later, at
the United Nations Rio + 20 Conference on Sustainable Development, countries of the
world “reaffirmed commitments” to integrating environment and development but
acknowledged limited progress toward these goals.1 In 2012, the United Nations
Environmental Programme (UNEP) report Global Environmental Outlook 5 found that
“burgeoning populations and growing economies are pushing ecosystems to
destabilizing limits.” According to the report:
The twentieth century was characterized by exceptional growth both in the human population and in the size of
the global economy, with the population quadrupling to 7 billion [in 2011] and global economic output
increasing more than 20-fold. This expansion has been accompanied by fundamental changes in the scale,
intensity, and character of society’s relationship with the natural world. Drivers of environmental change are
growing, evolving, and combining at such an accelerating pace, at such a large scale and with such widespread
reach that they are exerting unprecedented pressure on the environment.2 With the exception of ozone depletion, an area in which major reductions in
emissions have been achieved by international agreement, the UNEP report offers
evidence that the global environmental problems identified at UNCED in 1992 in the
areas of atmosphere, land, water, biodiversity, chemicals, and wastes have continued or
worsened. UNEP Global Environmental Outlook reports have identified nitrogen
pollution in freshwater and oceans, exposure to toxic chemicals and hazardous wastes,
forest and freshwater ecosystem damage, water contamination and declining
groundwater supplies, urban air pollution and wastes, and overexploitation of major
ocean fisheries as major global issues. Underlying all these problems is global population growth, which adds more than 70 million people a year. World population,
which exceeded 7 billion in 2011, is expected to grow to around 9 billion by 2050.
Scientists, policy makers, and the general public have begun to grapple with
questions such as: What will the future look like? Can we respond to these multiple
threats adequately and in time to prevent irreversible damage to the planetary systems
that support life? One of the most important components of the problem, which rarely
receives sufficient attention, is an economic analysis of environmental issues.
Some may argue that environmental issues transcend economics and should be
judged in different terms from the money values used in economic analysis. Indeed,
this assertion holds some truth. We find, however, that environmental protection
policies are often measured—and sometimes rejected—in terms of their economic costs.
For example, it is extremely difficult to preserve open land that has high commercial
development value. Either large sums must be raised to purchase the land, or strong
political opposition to “locking up” land must be overcome. Environmental protection
organizations face a continuing battle with ever-increasing economic development
pressures.
Often public policy issues are framed in terms of a conflict between development
and the environment. An example is the recent debate over “fracking,” or hydraulic
fracturing to obtain natural gas. Producing natural gas can be profitable and increase
the nation’s energy supplies, but there are social and environmental costs to
communities. Similarly, opponents of international agreements to reduce carbon
dioxide emissions argue that the economic costs of such measures are too high.
Supporters of increased oil production clash with advocates of protecting the Arctic
National Wildlife Refuge. In developing countries, the tension between the urgency of
human needs and environmental protection can be even greater.
Does economic development necessarily have a high environmental price? Although
all economic development must affect the environment to some degree, is
“environment-friendly” development possible? If we must make a tradeoff between
development and environment, how should the proper balance be reached? Questions
such as these highlight the importance of environmental economics. Two Approaches
In this book we explore two approaches to addressing natural resource and
environmental economics. The first, or traditional, approach uses a set of models and techniques rooted in the standard neoclassical mainstream of economic thought to
apply economic concepts to the environment.a The second approach, known as
ecological economics, takes a different perspective.3 Rather than applying economic
concepts to the environment, ecological economics seeks to place economic activity in
the context of the biological and physical systems that support life, including all
human activities. ecological economics
an economic perspective that views the economic system as a subset of the
broader ecosystem and subject to biophysical laws. The Traditional Economic Perspective
Several models in economic theory specifically address environmental issues. One
important application of neoclassical economic theory deals with the allocation of
nonrenewable resources over time. This analysis is important in understanding such
issues as the depletion of oil and mineral resources and also has applications to
renewable resources such as agricultural soils. Other economic analyses deal with
common property resources such as the atmosphere and oceans and public goods
such as national parks and wildlife preserves. Because these resources are not privately
owned, the economic principles governing their use are different from those affecting
goods traded in the market. nonrenewable resources
resources that are available in a fixed supply, such as metal ores and oil. renewable resources a resource that is supplied on a continuing basis by ecosystems; renewable
resources such as forests and fisheries can be depleted through exploitation. common property resources
a resource that is not subject to private ownership and is available to all, such as
the oceans or atmosphere. public goods
goods that are available to all (nonexclusive) and whose use by one person does
not reduce their availability to others (nonrival).
Another central concept in neoclassical economic analysis of the environment is
that of externalities, or external costs and benefits. The theory of externalities
provides an economic framework for analyzing the costs of environmental damage
caused by economic activities or the social benefits created by economic activity that
improves the environment. Externalities are also sometimes referred to as third-party
effects, because a market transaction that involves two parties—for example, someone
buying gasoline from a filling station—also affects other people, such as those exposed
to pollution from producing and burning the gasoline. externalities
an effect of a market transaction that changes the utility, positively or negatively,
of those outside the transaction. thi...
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