62 CHAPTER 3 Environmental History, Politics, and Economics
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When demand for crude oil goes up, economists expect that more will be pumped, and the price of a barrel of crude oil will increase.
What fossil fuel
resources are
extracted near
where you live?
How do they
affect the local
economy?GLOBALLOCAL- Explain how economics is related to natural
capital. Make sure you include sources and sinks. - Give two reasons why national income accounts
are incomplete estimates of national economic
performance. - Distinguish among the following economic terms:
marginal cost of pollution, marginal cost of pollution
abatement, and optimum amount of pollution. - Describe various incentive-based regulatory
approaches, including environmental taxes and
tradable permits.
E
conomics is the study of how people use
their limited resources, given the assump-
tion that each person strives to satisfy unlim-
ited wants. Economists try to understand the
consequences of the ways in which people, businesses,
and governments allocate their resources. Seen through
an economist’s eyes, the world is one large marketplace,
where resources are allocated to a variety of uses, and
where goods—a car, a pair of shoes, a barrel of oil—and
Environmental Economics
LEARNING OBJECTIVES
services—a haircut, a museum tour, an education—are
consumed and paid for. In a free market, supply and
demand determine the price of a good (Figure 3.13). If
something in great demand is in short supply, its price
will be high. High prices encourage suppliers to produce
more of a good or service, as long as the selling price is
equal to the cost of producing the good or service. This
interaction of demand, supply, price, and cost underlies
much of what happens in the U.S. economy, from the
price of a hamburger to the cycles of economic expan-
sion (increase in economic activity) and recession (slow-
down in economic activity).
Economies depend on the
natural environment as sources
for raw materials and sinks for
waste products (Figure 3.14).
Both sources and sinks contrib-
ute to natural capital. Under
the assumptions of economics,
the environment has value when
it provides natural capital fornatural capital
Earth’s resources and
processes that sustain
living organisms,
including humans;
includes minerals,
forests, soils, water,
clean air, wildlife, and
fisheries.Randy Olson/NG Image CollectionGlobal
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