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Geosciences LibreTexts

5.1.3: Resources

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  • Summary

    Environmental and natural resource economists study the tradeoffs associated with one of the most important scarce resources we have—nature. Economic activity generally affects the environment, usually negatively. Natural resources are used, and large amounts of waste are produced. These side effects can be seen as ways in which the actions of a producer impact the well being of a bystander. The market fails to allocate adequate resources to address such external costs because it is only concerned with buyers and sellers, not with the well being of the environment. Only direct costs are considered relevant. External costs are harmful social or environmental effects caused by the production or consumption of economic goods. A cost-benefit analysis provides an estimate of the most economically efficient level of pollution reduction that is practical. Environmental laws today encompass a wide range of subjects such as air and water quality, hazardous wastes and biodiversity. The purpose of these environmental laws is to prevent, minimize, remedy and punish actions that threaten or damage the environment and those that live in it. Conventions, or treaties, generally set forth international environmental regulations. These conventions and treaties often result from efforts by international organizations such as the United Nations (UN) or the World Bank. However, it is often difficult, if not impossible, to enforce these regulations because of the sovereign rights of countries. In addition rules and regulations set forth in such agreements may be no more than non-binding recommendations, and often countries are exempted from regulations due to economic or cultural reasons. Despite these shortcomings, the international community has achieved some success via its environmental agreements. These include an international convention that placed a moratorium on whaling and a treaty that banned the ocean dumping of wastes.

    Review Questions

    1. How do externalities cause market outcomes not to be efficient?
    2. How are the free rider problem and the common pool resource problem related to basic problems of externalities?
    3. What is discounting, and how do we use it in calculating the costs and the benefits of a project that has effects over a long period of time?
    4. Why is discounting controversial?
    5. How does cost-benefit analysis complement some of the other measures people use to evaluate a policy or project?
    6. List major international environmental laws of the past two decades.


    Theis, T. & Tomkin, J. (Eds.). (2015). Sustainability: A comprehensive foundation. Available from Available under Creative Commons Attribution 4.0 International License. (CC BY 4.0). Modified from original.

    University of California College Prep. (2012). AP environmental science. Available from Available under Creative Commons Attribution 4.0 International License. (CC BY 4.0). Modified from original.

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