Environmental and resource economics ppt

Random ppt

1. Environmental and resource economics

2. Overview What is Economics? Scope of Environment and Resource Economics Positive vs Normative approach Economic vs moral approach Government intervention in the market Local vs global problems

3. What is Economics Scarcity – a basic human dilemma Limited resources vs. unlimited wants The human condition requires making choices Definitions of Economics Mankiw’s definition Economics is the study of how society manages its scarce resources Hirshleifer’s definition Economics concerns decisions – choices among actions Alternative definitions Economics is how society chooses to allocate its scarce resources among competing demands to improve human welfare

4. Scope of Environment and Resource Economics Demand and supply of natural and environmental resources. Why do people take decisions that lead to environmental destruction/improvement? Pricing of Environment and Natural Resources by market dynamics vs. regulation

5. Positive vs Normative approach Positive approach What is Example, Rocket and feather phenomenon How does price of oil derivatives react to the changes in the crude price? Normative approach What ought to be? Example, what kind of regulation we ought to adopt for providing cushion to the poor against rising petro price?

6. Economic vs Moral approach Economic approach Shareholders’ wealth maximization Assigning market solution to pollution, e.g., carbon trading How does price of oil derivatives react to the changes in the crude price? Moral approach Polluting environment for profit motive is unethical Example, ship breaking in Alang , Gujarat Developed countries are pushing long used ships for dismantling to the seashores of the developing nations in exchange of payment of fees Degradation of environmental quality in developing nations

7. Government intervention in the market In a competitive market equilibrium, price and quantity freely adjust to the forces of demand and supply. Sometimes the government controls how much prices are permitted to fall or rise. Price floor Price ceiling

8. Price floor Quantity Price Supply         Demand Surplus   Price floor Cost of purchasing excess supply

9. Price floor Consider a market with demand and supply functions, respectively, as and Find the equilibrium price and quantity Suppose a $4 price floor is imposed on the market. Find the surplus and the cost to the government of purchasing the surplus.  

10. Price floor Answer units units Since a surplus of units exists The cost to the government of purchasing the surplus is .  

11. Price ceiling Quantity Price Supply           Demand Shortage   Price ceiling

12. Price ceiling Consider a market with demand and supply functions, respectively, as and Find the equilibrium price and quantity Suppose a $1.50 price ceiling is imposed on the market. Find the full price and the nonpecuniary price  

13. Price ceiling Answer units. units. Since a shortage of units exists. Full economic price of unit is , or . Of this, $1.50 is the dollar price $1 is the nonpecuniary price  

14. Dead weight loss

15. Local vs global problems Incentives and households Pay-as-you throw system (PAYT) in Texas 32 gallon cart with free recycling service - $8 64 gallon cart with free yard waste disposal - $13 96 gallon cart with bulky item pickup - $18 Monthly fee collected by Indian Municipal corporations Flat fee irrespective of the amount of garbage produced

16. Local vs global problems Incentives and global warming National/International problem Green house effect – long term changes in climate Across geographical boundaries Control mechanism Command and control – regulating specific pollution control technique through enforcement procedures (e.g., inspection, penalty) Incentive based policy – Cap and trade with emission permits

17. Perverse incentives Incentives created by a policy actually works against the objective of the very policy CAFÉ (Corporate Average Fuel Efficiency), 1970 Adopted to ensure minimum mileage to achieve higher fuel efficiency. However, with improved mileage travel becomes less costly and hence, vehicle owners travel more.

18. Discussion