Environmental Economics

Differentiate between product and service economy.

A product economy focuses on putting out a product that is consumed. A service economy focuses on the service required by the consumer rather than the product. (leasing rather than selling)

What are the advantages and disadvantages of internalizing external costs?

Advantages: redirect economic growth in ways that consider long-term, societal and environmental impacts; paying real price lets the market regulate so that products that have expensive and harmful health and welfare effects will be purchased less. Disadvantages: difficult to determine external costs; higher prices will allow competitors that don't internalize external costs to outcompete.

What is the Law of Diminishing Returns?

Each additional unit of input yields less and less additional output.

Differentiate between economic "needs" and "wants".

Needs: Must have to stay alive. Wants: everything else.

What is economics?

The study of the production, distribution, and consumption of goods and services.

Be able to draw the optimum pollution graph given in class

human health welfare goes up, pollution technology goes down, true cost makes a u. http://wc.pima.edu/~bfiero/bio105/economics

Distinguish between capital and interest and what has to be done to be sustainable.

Capital: consumable resources. Interest: what is produced by the capital over time. Sustainable use requires using only the interest and not the capital.

Apply internal costs, external costs, true costs, diminishing returns, and opportunity cost to the pollution example (be able to draw the graph given in class for determining optimum pollution emission levels for smoke coming out of a smokestack at a factory).

Internal costs are the costs of pollution cleanup. External costs are the human health and welfare costs. True costs are the sum of those costs. We see diminishing returns on pollution cleanup (cleaning the first 25% is cheaper than the last 25%) and on human health and welfare costs related to pollution (cleaning up the first 25% has a large effect on health, the last 25% has little effect). By requiring the company to reduce pollution emissions to the optimum amount (lowest true cost), this allows the rest of the money that would have been spent cleaning up the emissions to 0% to be used to help human health and welfare in more productive ways.

What is meant by internal costs, external costs, and true costs?

Internal costs: costs paid directly by the consumer. External costs: costs not included in market price but ultimately paid by someone. True costs: internal plus external costs.

Define ecological footprint

Land needed to provide resources and assimilate wastes.

Differentiate between linear and closed-loop systems. Which is more potentially sustainable?

Linear production systems assume human and natural resources are infinite. Closed-loop systems consider the life cycle of a product, including its disposal and has the greater potential to be sustainable.

What is Opportunity Cost?

What you make a decision, the most valuable alternative you give up is your opportunity cost.