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SELF QUIZ: ENVIRONMENTAL ECONOMICS
Questions | Answers
 
  1. The study of the production, distribution, and consumption of goods and services.
  2. Needs: must have to stay alive and healthy. Wants: everything else
  3. Each additional unit of input yields less and less additional output.
  4. When you make a decision, the most valuable alternative you give up is your opportunity cost.
  5. Internal costs: costs paid directly by the consumer. External costs: costs not included in market price but ultimately paid by someone (you, others, future generations). True costs: internal plus external costs. Internalizing external costs: adding external costs to the internal cost so consumer pays true cost.
  6. Advantages: redirect economic growth in ways that consider long-term, societal and environmental impacts; paying real price lets market regulate so that products that have expensive and harmful health and welfare effects will be purchased less. Disadvantages: difficult to determine external costs; higher prices will allow competitors that don't internalize external costs to outcompete.
  7. Be able to draw the optimum pollution graph given in class (see graph below). Internal costs are the costs of pollution cleanup. External costs are the human health and welfare costs. True costs are the sum of those costs. We see diminishing returns (note the curved lines) on pollution cleanup (cleaning up the first 25% of the pollution emitted is much less than cleaning up the last 25% of pollution emitted) and on human health and welfare costs related to pollution (cleaning up the first 25% of the pollution emitted has large effect on human health and welfare compared to the smaller effect gained by cleaning up the last 25% of pollution emitted). By requiring the company to reduce pollution emissions to the optimum amount (lowest true cost), this allows the rest of the money that would have been spent cleaning up the emissions to 0% to be used to help human health and welfare in more productive ways.

smokestack example