EE Week 1-1
EE Week 1-1
EE Week 1-1
Resources
Tutor
• Roger Perman (Economics)
Overview
Objectives
• understand the strengths and weaknesses of the economic approach to environmental management;
• know how to economically appraise projects with environmental impacts;
• understand economic arguments about the merits of alternative instruments for environmental protection, such as taxes
and tradable permits.
Economics of the Environment and Natural
Resources
Assessment
• Students are assessed on the basis of a project report and one essay, the latter being chosen from a set of titles distributed
in advance and then being completed under examination conditions. The weighting of each element is equal, and so the
report and the exam each contribute 50% towards the final mark.
Reading List
• The core text is: Common, M. S. 1996. Environmental and resource economics: an introduction. 2nd edition. Longman,
which assumes no previous knowledge of economics, and uses no mathematics beyond elementary algebra.
• Students who have previously studied economics and who have a reasonable mathematical background (particularly some
calculus), may find Perman, R., Ma, Y., McGilvray, J. and Common, M. 2003. Natural resource and environmental economics.
(Third Edition. Longman, Harlow) more suitable.
• Readings on particular topics will be provided as the module proceeds.
• http://www.economics.strath.ac.uk/rp/GSES_Class_Notes.htm
Syllabus
• Meanings:
• The net benefit that society as a whole can obtain from a given set of scarce resources is
maximised
• The mix of goods and services being produced, and the relative quantities being
produced of each, are ones that maximise social well-being (for any given distribution of
income and wealth)
• Resources are not being wasted (no different pattern of use of resources is available
such that one can be made better off without at least one other person being made
worse off)
Why might a competitive market economy
“automatically” generate efficient outcomes?
Essential ideas: take a single good or service, X
This implies
• BX = C X
or
Marginal Benefit of X = Marginal Cost of X
MB and MC
It turns out that in a competitive market economy, MB(X) is
equivalent to the market demand curve for X
Price
of X
D(X) = MB(X)
Price
of X
S(X) =
MC(X)
P*
P*
D = MB
35
D1 D2 D1+D2 =D = Social MB
£60
Consumers’ Surplus
£35
Consumers’ Expenditure
0 20 X
The value consumers obtain
P
0 25 30 X
Consumers obtain more value if they have more of the good
P
Original consumer
surplus
Increased consumer
surplus
0 25 30 X
Consumers obtain more value if they have more of the good
One firm only
Price
Si = MC
10
Market Supply
Price
S1 S2 (=S1+S2)
Producers’
Surplus
£5
Producers’
Total Variable
Costs
0 20 X
The value obtained by producers
P
0 30 X
Producers may be able to obtain more value if they sell more goods
Maximised sum of consumers and producers surpluses at
the market equilibrium price and quantity traded
P S
Consumer Surplus
P*
Producer Surplus
D
X* X
WE HAVE SEEN THAT:
• Markets may bring about efficient allocations of resources.
• Next time we shall investigate what outcomes are when these conditions
are not all satisfied. Particular focus will be given to environmental goods
and services.