Micro economic ECONOMICS OF THE ENVIRONMENT.ppt

1、17,ECONOMICS OF THE ENVIRONMENT,We burn huge quantities of fossil fuelscoal, natural gas, and oilthat cause acid rain and global warming. We dump toxic waste into rivers, lakes, and oceans. These environmental issues are simultaneously everybodys problem and nobodys problem. The fish stocks in the w

2、orlds oceans are not owned by anyone. They are common resources that everyone is free to use. But we are overusing our fish stocks and brings some species into extinction. What can be done to conserve the worlds fish stocks?,Negative Externality: Pollution,An externality is a cost or benefit that ar

3、ises from production and falls on someone other than the producer, or a cost or benefit that arises from consumption and falls on someone other than the consumer. A negative externality imposes an external cost.,Negative Externality: Pollution,Sources of Pollution Economic activity pollutes air, wat

4、er, and land, and these individual areas of pollution interact through the ecosystem. The three biggest sources of pollution are road transportation, electricity generation, and industrial processes.,Negative Externality: Pollution,Effects of Pollution While the facts about the sources and trends in

5、 air pollution are not in doubt, there is disagreement about the effects of air pollution. The least controversial is acid rain caused by sulphur dioxide and nitrogen oxide emissions from coal- and oil-fired generators of power stations. Acid rain begins with air pollution, and it leads to water pol

6、lution and damages vegetation.,Negative Externality: Pollution,Many scientists believe that carbon dioxide emissions are a major cause of global warming and climate change. The effects of pollution mean that production and consumption decisions impose costs that are not taken fully into account when

7、 decisions are made. You are now going to see how economists analyse these decisions and solve the pollution problem.,Negative Externality: Pollution,Private Cost and Social Cost of Pollution A private cost of production is a cost that is borne by the producer. Marginal private cost (MC) is the priv

8、ate cost of producing one more unit of a good or service. An external cost of production is a cost that is not borne by the producer but is borne by others. Marginal external cost is the cost of producing one more unit of a good or service that falls on people other than the producer.,Negative Exter

9、nality: Pollution,Marginal social cost (MSC) is the marginal cost incurred by the entire societyby the producer and by everyone else on whom the cost falls. Marginal social cost is the sum of marginal private cost and marginal external cost. MSC = MC + Marginal external cost We express costs in doll

10、ars but remember that the dollars represent the value of a forgone opportunity. Marginal private cost, marginal external cost, and marginal social cost increase with output.,External Cost and Output Figure 17.1 illustrates the MC curve, the MSC curve, and marginal external cost as the vertical dista

11、nce between the MC and MSC curves.,Negative Externality: Pollution,Negative Externality: Pollution,Production and Pollution: How Much? In the market for a good with an externality that is unregulated, the amount of pollution created depends on the equilibrium quantity of the good produced.,Figure 17

12、.2 shows the equilibrium in an unregulated market with an external cost. The quantity of the good produced is where marginal private cost (MC) equals marginal social benefit (MSB).,Negative Externality: Pollution,At the market equilibrium, MSB is less than MSC, so the market produces an inefficient

13、quantity of the good. At the efficient quantity of the good, MSC = MSB. With no regulation, the market produces too much of the good and creates a deadweight loss.,Negative Externality: Pollution,Negative Externality: Pollution,Property Rights Sometimes externalities arise because of the absence of

14、property rights. Property rights are legally established titles to the ownership, use, and disposal of factors of production and goods and services that are enforceable in the courts.,Figure 17.3 illustrates how the establishment of property rights achieves an efficient outcome. The producer of the

15、good bears all the costs. The market outcome is efficient because at the quantity of the good produced MSC equals MSB.,Negative Externality: Pollution,Negative Externality: Pollution,The Coase Theorem The Coase theorem is a proposition that if property rights exist, only a small number of parties ar

16、e involved, and transactions costs (defined below) are low, then private transactions are efficient. There are no externalities because all parties take into account the externalities involved. The outcome is independent of who has the property rights.,Negative Externality: Pollution,The Coase solut

17、ion works only if transactions costs are low. Transactions costs are the cost of conducting a transaction. An example is the transactions costs of buying a home include fees for a realtor, a mortgage loan advisor, and legal assistance. When a large number of people are involved in an externality and

18、 transactions costs are high, the Coase solution of establishing property rights doesnt work and governments try to deal with the externality.,Negative Externalities: Pollution,Government Actions in a Market with External Costs There are three main methods that the government uses to cope with external costs: Taxes Emiss