HL.bA Environmental economics and its key concepts Notes

Economics

It plays a crucial role in understanding how resources are allocated and how economic systems function.

Key Aspects of Economics

Supply and Demand

1. The foundation of economic theory revolves around supply (producers providing goods/services) and demand (consumers wanting them).
2. Prices are determined based on the interaction of supply and demand in the market.

Market Interaction

1. Markets facilitate exchanges between buyers and sellers, influencing resource allocation.
2. Economic models analyze how decisions made by individuals, businesses, and governments shape economic outcomes.

Microeconomics vs. Macroeconomics

1. Microeconomics: Focuses on individual behavior such as how businesses set prices, consumer choices, and market structures.
2. Macroeconomics: Examines large-scale economic factors, including inflation, unemployment, GDP, and economic growth.

Resource Allocation

1. Economics studies how societies decide what to produce, how to produce, and for whom to produce.
2. It examines the scarcity of resources and how they are allocated efficiently through market or government intervention.

Economic Systems

1. Capitalism (market-driven), socialism (government-controlled), and mixed economies (a blend of both).
2. Different economic systems impact wealth distribution, growth, and environmental sustainability.

Environmental Economics

1. Environmental economics applies economic principles to environmental issues, aiming to balance economic growth with environmental protection.
2. It studies how economic activities impact the environment and how policies can mitigate negative effects like pollution, resource depletion, and climate change.

Two Perspectives in Environmental Economics:

Technocentric View (Environmental Economics)

1. Believes science and technology can solve environmental problems within the current economic framework.
2. Market-based solutions: Supports carbon trading, eco-taxes, and incentives for green technology.

Ecocentric View (Ecological Economics)

1. Advocates a fundamental shift in economic thinking, prioritizing nature over economic growth.
2. Recognizes the limits of economic growth and emphasizes sustainable resource use.

Key Economic Strategies for Environmental Management:

1. Market-based mechanisms (e.g., carbon pricing, cap-and-trade).
2. Government regulations (e.g., pollution limits, environmental taxes).
3. Valuing ecosystem services (e.g., putting a price on clean air and water).
4. Incentives for sustainable business practices (e.g., subsidies for renewable energy).

Market Failure and the Environment

Market failure occurs when the free market (where supply and demand determine prices) fails to allocate resources efficiently, leading to negative social or environmental consequences.

Causes of Market Failure in Environmental Issues:

Negative Externalities (Costs imposed on society)

1. Occur when economic activities harm third parties without compensation.
2. Leads to net welfare loss, society bears the cost while the polluter profits.

Public Goods and the Free Rider Problem

1. Public goods (like clean air, oceans, and forests) are non-excludable and non-rival, people benefit without paying.

Tragedy of the Commons

1. Shared resources get overused and depleted because individuals act in their own self-interest.

Lack of Property Rights

1. If no one owns or regulates a resource, it is often overexploited.