ECONOMICSANDTHEENVIRONMENT.ppt

ECONOMICS AND THE ENVIRONMENT How much is clean air worth? Can you charge somebody for damaging your air? How much are you willing to pay for clean air? Should you have to pay for clean air? Have you ever caught a fish off the UST pier? Is cutting down the rainforests efficient? What market incentives are there for research on the environment? How can the environment be priced and sold? Does Hong Kong have any mechanisms for valuing its environment? Lecture Objectives: Review Advantages and Limitations of Market Economics Understand how economics is creating new principles and guidelines for business activity. Comparing: Neo-classical Economics Environmental Economics Ecological Economics To reveal policy implications What is an economy supposed to do? What is the Neo-classical approach? What is a market? A system of exchange What is exchanged? Resources: land, labor, capital (ie. goods or services in some form) How does the market work? Matching of supply and demand Why is the market such a good system? Optimal use of resources: buyers force competition on suppliers; greatest return for the efforts of suppliers Pareto efficiency: “a situation where it is impossible to make one person better off without making anyone else worse off” Meaning: allocation of resources to the uses that will bring the greatest overall increase in production and monetary value by matching producers with the highest bidders What enables the market to work? Price or Value setting Profit motive Private property Government and other regulating institutions Does the market operate perfectly? 1. General Market Failures: Monopoly; information asymmetry; missing markets; transaction costs. Market Failures What company did you buy your air from? How much did you pay for your air? How was that price set? How clean was the air you bought? How do you know? How can a company stop other companies from dirtying its air? What can you do if someone makes your air dirty after you bought it? W