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    Neoclassical Economics

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    Yuvi

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    Neoclassical Economics

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    Yuvi

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    Yuvi

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    8 views8 pages

    Neoclassical Economics

    Uploaded by

    yuviyuvarajagc
    Yuvi

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 8

    Q.1. What Is Environmental Economics?

    Environmental economics is the study of the cost-effective allocation, use,


    and protection of the world's natural resources.

    Economics, broadly speaking, is the study of how humans produce and


    consume goods and services. Environmental economics focuses on how they use
    and manage finite resources in a manner that serves the population while meeting
    concerns about environmental impact.

    Q.2. What Is the Difference between Environmental Economics and Ecological


    Economics?

    Environmental and ecological economics are both sub-fields of economic thought


    that study the interactions between human activity and the natural environment.
    The difference is that environmental economics studies the relationship between
    the environment and the economy, while ecological economics considers the
    economy to be a subsystem of the wider ecosystem.

    Q.3.What Is the Relationship Between Neoclassical Economics and


    Environmental Economics?

    Neoclassical economics is a broad theory that focuses on supply and demand as


    the driving forces of economic activity. Environmental economics is based on the
    neoclassical model but places a greater emphasis on negative externalities, such as
    pollution and ecosystem loss.
    Q.4 Discuss the scope of Environmental Economics.
    Environmental economics is considered both a positive and a normative science.
    Therefore, it has wide scope. The scope of environmental economics can be
    analyzed as follows--------------

    1. Economy-environment analysis:
    Environmental economics is primarily concerned with the impact of
    economic activities on environment and its implications for the individual firm,
    industry and the economy as a whole. Economists have formulated economy-
    environment models to explain the various economic activities and their external
    effects. For example, the Material Balance Model and the Leontief Abatement
    Model explain these externalities.

    2. Economic development:
    The main objective of environmental economics is to maintain a balance
    between economic development and environmental quality. In order to achieve it,
    environmental economists have to explore the various socio-economic possibilities
    to reduce pollution and uplift the standard of living of the people. This objective
    gained momentum after the publication of the Report on Limits to Growth.

    3. Welfare approach:
    Environmental economics has emerged as a discipline to tackle
    environmental problems from an economic welfare framework. The welfare
    framework covers scarce resources and market failures due to property rights and
    ethical aspects of different problems of pollution. Thus it suggests the best possible
    means to tackle the environmental problems.
    4. Dynamic and stock-flow analysis:
    The mainstream economics is largely confined to the static problems of
    market behaviour. But environmental management issues are about resources and
    are dynamic in nature. Moreover, resources have a stock and they have a rate of
    depletion and replenishment such as oil, minerals, and forests. Thus there is the
    inevitable stock-flow dimension to environmental issues.

    5. Environmental values:
    Environmental issues are about resources. The neo-classical economists
    have analysed the use of various resources like fisheries, forests, fossil fuels and
    water in a rational manner and with environmental values. In fact, environmental
    values are economic values. It is important for the society to conserve its limited
    resources in the interest of economic efficiency and welfare.

    6. Clean Technology:
    Presently environmental pollution is caused by misuse of existing
    technology and failure to develop better one. Environmental economists are in
    favour of appropriate and clean technologies which provide the most rational use
    of natural resources and energy and to protect the environment.

    7. International Cooperation:
    There are many international issues like hazards of trans-boundary
    shipments, unwanted substances and common property resources which need
    international cooperation among nations. There are many negative effects of
    inadequate toxic wastes generated within countries and hazardous goods exported
    to other countries.
    Most countries of the world are insisting on uniform standards and environmental
    regulations for all nations. Other issues are related to international common
    property resources, especially the share of river water and forest lands, etc.

    8. Conservation Policy:
    The longstanding foundation of environmental economics lies in
    conservation economics which tends to emphasise the impact of economic
    activities on demand for productive resources and energy resources. It suggests the
    optimal strategy in the utilization of natural resources in a rational manner.

    9. Multi-disciplinary base:
    Environmental economics is inherently a multi-disciplinary subject. It
    consists of an integration of many varied disciplines such as biology, ecology,
    physical sciences, ethics and main stream economics. Therefore, it has wide scope.

    Q . Explain the nature of environmental economics.

    Nature of Environmental Economics:


    Environmental economics is considered both as positive and normative science. It
    also covers both micro and macro aspects of different pollution problems.

    1. Positive and Normative aspects:


    Environmental economics is an application of scientific theories and general
    application of welfare economics. When we study the cause and effect relationship,
    it covers the positive aspect. For example, the laws of thermodynamics are equally
    applicable to economic process.
    If the problem is related to policy measures, then it is considered as normative
    aspect. Therefore, environmental economics is a normative science because it
    prescribes the goals of environmental policy. As pointed out by B. C. Field,
    “Environmental degradation is the result of human behaviour that is unethical or
    immoral. Thus, for example, the reason people pollute is because they lack the
    moral and ethical strength to refrain from the type of behaviour that cause
    environmental degradation. If this is true, then the way to get people to stop
    polluting is somehow to increase the general level of environmental morality in the
    society.” Field calls it as moral approach to environmental issues.

    2. A Study of Micro and Macro Aspects:


    Economists such as Pigou, Hoteling and Nordhaus have formulated their models
    in relation to individual firms and natural resources. Therefore, it covers the micro
    and macro aspects of the pollution problem. There are many examples of micro
    and macro aspects of environmental problems in the present times.

    We generally observe crowded market places, industrial units, and even


    residential areas in a city like, Delhi. We do not get enough fresh air at these
    places. Its solution lies in micro level planning. On the other-hand, when the
    pollution problem is related to the economy as a whole such as rise in temperature,
    then it is related to macro aspect of environmental planning.

    Environmental economics draws more from microeconomics than from


    macroeconomics. It focuses primarily on how and why people make decisions that
    have consequences for the natural environment. It is concerned also with how
    economic institutions and policies can be changed to bring these environmental
    impacts more into balance with human desires and the needs of the ecosystem.
    3. As Static and Dynamic:
    Classical and Neoclassical economists have applied both static and dynamic
    approaches in relation to environment. They have applied economic welfare
    approach to environment which is static in nature whereas under dynamic
    approach, they focus on forests, minerals, fossil fuels and water resources etc.

    4. As A social science:
    Environmental economics deals with economic and managerial aspects of pollution
    and natural resources. It interacts between human beings and their physical
    surroundings. It studies the impact of pollution on human beings and suggests
    national utilization of resources in a proper way so that there may be an increase in
    social welfare or minimization of social costs.

    Environmental economics is also concerned, with the natural environment, but not
    exclusively so. For example, man-made and cultural or social environments may
    also be a part of the nature of environmental economics.

    5. Environmental Pollution as an Economic Problem:


    Environmental pollution is an economic problem because it requires us to make
    choices and to resolve conflicts of interests. It is an economic problem because the
    means by which pollution can be reduced are themselves resources using. Further,
    it also reduces the value of some resources that society has at its disposal.

    It means that pollution is a problem of scarcity in terms of waste disposal capacity.


    The main problem of choice is how to utilize the scarce resources in relation to
    society’s needs. The market forces will be helpful in determining these scarce
    resources in most rational manner. The equilibrium will be attained at the equality
    of demand and supply of environmental quality.
    Since resources are scarce they cannot be used to produce all types of goods
    simultaneously. Therefore, if they were used to produce one thing, they have to be
    withdrawn from other uses. The problem of choice facing a modem society is
    whether to maintain environmental quality or to increase industrial production (i.e.
    automobiles). It creates conflicts of interest between potential gainers and potential
    losers.

    The problem of externalities is an important aspect of environmental quality. The


    external effects of industrial production may affect the environmental quality.
    Therefore, the economic problem is the optimal allocation of resources in the
    context of externalities.

    One of the objectives of environmental quality is to restrict those production


    activities which enhance social costs to society. Environmental quality is largely
    influenced by human activities in terms of excess exploitation of resources and the
    production of waste. How much environmental quality is affected by exploitation
    of resources and production of waste depends on ecological conditions of the
    economy. More exploitation of it means more pollution.

    Environmental pollution as an economic problem is explained in terms of Figure 1.

    It is assumed that the economy is producing two sets of


    goods, a composite good (M) which is the aggregate of all existing goods and
    services, and second, an environmental quality good which also represents certain
    quantity of emission reductions.
    The ME curve represents a production frontier which explains the trade-off
    between economic activity and emission reduction. If the economy moves from
    point S to point A on the ME curve, it means more production with increase in
    economic activity without increased emission.

    On the other hand, if the economy moves from point S to points В on the ME
    curve, it means more emission reduction without reducing the economic activity
    level (L) because point S and point В lie in the same direction.

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