AP Environmental Science

1
AP Environmental Science Economics and Environment
2
Outline
1. Economic Systems market economies,
environmental considerations 2. Economic Growth
and External Costs measurement of growth,
externalities 3. Economics and Environmental
Quality fullcost pricing, regulation vs. market
forces
3
1. Economic Systems

• An economy is a system of production,
  distribution, and consumption of economic goods.
  Economic goods are any material items or services
  that satisfy people's needs and wants.
• pure market economic system (pure capitalism)
  system in which economic decisions are made in
  markets, where buyers and sellers interact freely
  without government or other interference
• pure command economic system system in which all
  economic decisions are made by the government or
  some other central authority
• mixed economic system system that falls between
  pure market and pure command economic systems
  virtually all of the world's economic systems are
  mixed

4
Mixed Economic Systems

• In reality, all countries have mixed economic
  systems that fall somewhere between pure market
  and pure command systems.
• United States and Canada are more on pure market
  end of spectrum China and North Korea are more
  on commandandcontrol end of spectrum
• pure market depends on interactions of demand,
  supply, and price under pure competition
  however, flaws exist wherein monopolies,
  oligopolies, or cartels come into existence,
  placing control in the hands or one or a few
  buyers or sellers
• governments intervene to provide public goods
  (security, education, police, roads), compensate
  for natural disasters, and ensure economic
  stability.

5
Pure Market Economic System
In a pure market economic system money flows
between households and businesses in a closed
loop in exchange for this flow of money products
and labor flow in another closed loop. Such a
view ignores the environmental context of
economics.
Fig. 272
6
Environmental View
Economics does not operate in isolation, but
rather exists within real constraints of the
ecosphere.
Fig. 273
7
Supply and Demand
If supply and demand are the only factors
involved, the market will tend to reach an
equilibrium between supply and demand. This is
represented as the intersection of supply and
demand curves.
Fig. 274
8
Supply and Demand
Shortterm effects of rising demand for gasoline
can shift the demand curve and cause a new
equilibrium point, as the result of more drivers,
switch to less efficient cars, more disposable
income, or decreased use of mass transit.
Fig. 275
9
Supply and Demand
Shortterm effects of declining gasoline supply
can shift the supply curve and cause a new
equilibrium point, if costs increase for finding,
extracting, or processing increase or existing
deposits are economically depleted.
Fig. 276
10
2. Economic Growth and External Costs

• Virtually all economies seek economic growth, an
  increase in the capacity of the economy to
  provide goods and services for people's final
  use.
• growth usually accomplished by maximizing
  throughput (flow of matter and energy resources)
  by means of increasing consumption (population
  growth and per capita demand)
• gross domestic product (GDP), the market value
  (in dollars) of all goods and services produced
  by an economy within a country's borders
• gross national product (GNP), GDP plus net income
  from abroad
• GDP and GNP generally adjusted for inflation (any
  increase in average price levels).

11
Is Economic Growth Sustainable?

• Most economists believe that the capacity for
  economic growth is virtually unlimited because of
  Earth's vast resources and human ingenuity.
• economic growth, increase in the capacity to
  provide goods and services, generally assumes
  increasing use of resources is sustainable
• economic development using economics to improve
  the quality of peoples lives also refers to
  increases in efficiency to have save same output
  with less throughput
• sustainable development economic development
  that do not deplete or degrade natural resources
• ecologically sustainable development development
  in which the total human population size and
  resource use are limited to a level that does not
  exceed the carrying capacity of the existing
  natural capital and truly sustainable.

12
GNP and GDP

• GNP and GDP are poor measures of human welfare,
  environmental health, or even economic health.
• GNP and GDP count any economic activity the same,
  whether negative or positive to society
• GNP and GDP hide the negative effects of
  producing goods and services (pollution, crime,
  negative health effects)
• GNP and GDP do not include depletion and
  degradation of natural resources
• GNP and GDP hide or underestimate some positive
  effects of responsible behavior to society, such
  as buying green products, conservation, and
  volunteer work
• GNP and GDP tell nothing about economic justice,
  the fair distribution of income, resource use,
  and pollution effects.

13
GNP and GDP
Various alternative economic indicators have been
proposed to better measure societal benefit and
environmental impacts than do GNP and GDP. One
such indicator, the genuine progress indicator
(GPI) shows a decrease over time due to
environmental degradation, negative health
impacts, and unfair distribution.
Fig. 277
14
Internal and External Costs

• All economic goods and services have both
  internal and external costs.
• internal cost direct cost paid by the producer
  and the buyer of an economic good
• external cost harmful social effect of producing
  and using an economic good that is not included
  in the market price of the good for example
  environmental costs in terms of pollution, health
  effects, and land degradation are typically not
  included
• internalizing external costs involves including
  harmful costs in the price of a good, e.g.,
  including the cost of pollution prevention or
  cleanup.

15
3. Economics and Environmental Quality

• Solving environmental problems requires well
  conceived and creative approaches to working
  within economic systems
• fullcost pricing includes all costs in the
  price of goods, eliminating subsidies and tax
  breaks that encourage resource waste and
  belowmarket use of public resources,
  externalizing external costs (e.g., pollution
  prevention and cleanup
• regulation and market forces includes setting
  standards, regulating harmful activities, and
  banning release of toxic substances rewards (tax
  breaks and subsidies) can encourage
  environmentally sound practices
• pollution prevention prevention more economical
  in the long term than cleanup.

16
Economic Solutions
Table 271. Economic solutions to pollution and
resource waste.
17
Economic Solutions
The cost of removing each additional unit of
pollution rises exponentially, which explains why
it is cheaper to prevent pollution than to clean
it up.
Fig. 278
18
Economic Solutions
Finding the optimal level of pollution, based on
the balance of costs to society and cleanup
costs. This graph shows the optimal level at 50,
but the actual level varies depending on the
pollutant.
Fig. 279
19
Economic Solutions
Wealth is becoming increasingly concentrated,
with the richest 20 receiving most of the
world's income.
Fig. 2711
20
Economic Solutions

• How can we encourage earthsustaining economies?
• reward (subsidize) earthsustaining behavior
• discourage (tax) earthdegrading behavior
• use fullcost accounting (include environmental
  and external costs)
• use environmental and social indicators to
  measure progress
• make environmental concerns part of international
  trade agreements and loans
• reduce waste of energy, water, and mineral
  resources
• preserve biodiversity
• reduce poverty
• slow population growth.