Environmental Economics Chapter 1

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Questions and Answers

What is the environment referred to as in the context of the economy?

A thermodynamically open system

A thermodynamically closed system (correct)

A self-sustaining system

A self-contained system

What is one of the functions of the environment to the economy?

Regulator of economic activity

Source of resource inputs (correct)

Provider of labor services

Sink for economic outputs

What is the result of production in the economy-environment system?

Only consumption of environmental services

Only addition to the human-made capital stock

Only provision of amenity services

Both waste inserted into the environment and addition to the human-made capital stock (correct)

What is the economy located within?

The natural environment Signup and view all the answers

What is involved in the economy-environment system?

Production, consumption, and environmental processes and services Signup and view all the answers

What is the environment referred to as in terms of matter?

A closed system Signup and view all the answers

What are the environmental functions that interact with one another?

Resource inputs, amenity services, waste reception, and life support services Signup and view all the answers

What is a possibility in the economy-environment system?

Substituting reproducible capital for natural capital Signup and view all the answers

What is the Environmental Kuznets Curve (EKC) similar to in terms of its pattern?

An inverted-U relationship similar to the hypothesis by Kuznets on income inequality Signup and view all the answers

According to the World Development Report 1992, what is the assumption behind the view that greater economic activity hurts the environment?

Static assumptions about technology, tastes, and environmental investments Signup and view all the answers

What is the equation that represents the view that per capita emissions increase linearly with per capita income?

e = αy Signup and view all the answers

Which of the following countries are likely to be on the left-hand curve of the EKC?

China, India, and many countries in Latin America and Africa Signup and view all the answers

What is a limitation of the EKC hypothesis?

It does not account for local institutional reforms and market-based incentives Signup and view all the answers

What is a criticism of the EKC hypothesis?

It is too simplistic and does not account for other factors affecting pollution Signup and view all the answers

What is an alternative explanation for reductions in pollutants?

Local institutional reforms, market-based incentives, and empowerment Signup and view all the answers

What is a potential consequence of the EKC hypothesis for countries like China, India, and many countries in Latin America and Africa?

Increases in income will create more rather than less pollution in the near future Signup and view all the answers

What is the primary distinction between stock resources and flow resources?

The level of current use affects future availability of stock resources, but not flow resources. Signup and view all the answers

What is the main difference between the traditional economic system and resource economics?

The inclusion of natural resource input in resource economics. Signup and view all the answers

What is the primary goal of moving towards a more sustainable society?

To understand the interactions between the economy, community, and environment. Signup and view all the answers

What is the primary consequence of poverty?

Physiological deprivation and lack of access to economic resources. Signup and view all the answers

What is the role of Mi in the environmental economics production function?

Representing the flow of waste arising from the ith firm's activity. Signup and view all the answers

What is the primary characteristic of the environmental economics production function?

It includes waste output as a factor of production. Signup and view all the answers

What is the primary difference between the traditional economic system and environmental economics?

The inclusion of waste output in environmental economics. Signup and view all the answers

What is the primary goal of environmental policy?

To reduce environmental pollution and promote sustainability. Signup and view all the answers

Study Notes

Economy and Environment

Economic activity takes place within the environment and is part of the earth's system, which receives inputs of solar radiation.
The economy involves production and consumption, which draw upon environmental services, and production gives rise to wastes inserted into the environment.

Environmental Functions

The environment provides four functions to the economy:
- Source of resource inputs
- Source of amenity services
- Receptacle for wastes
- Provides life support services
These environmental functions interact with each other in various ways and may be mutually exclusive.

Substitutability of Natural and Reproducible Capital

There exist possibilities to substitute reproducible capital for 'natural capital'.

Environmental Kuznets Curve (EKC)

The EKC is an inverted-U relationship between pollution concentrations and per capita real GDP.
The EKC hypothesis states that pollution initially increases with economic development, but eventually decreases as income rises.
Not all pollutants follow the EKC pattern, and some scholars argue that the EKC relationship is not a general metaphor for the relationship between income and sustainability.

Resource Economics

Resources can be classified into stock resources and flow resources.
The difference between the two lies in whether the level of current use affects future availability.

Production Function Specifications

Microeconomics classical production function: Qi = fi (Li, Ki)
Resource economics production function: Qi = fi (Li, Ki, Ri)
Environmental economics production function: Qi = fi (Li, Ki, Mi)
Extended environmental economics production function: Qi = fi (Li, Ki, Mi, A) with ambient pollution

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Description

Explore the interdependence between the economy and the environment, and how economic activity affects the natural environment. Learn about the two-way relationships and sustainability in environmental economics.