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ECS2606 exam paper Nov 2018 QUESTIONS AND ANSWERS!!
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ECS2606 NOV’181. Explain the difference between neoclassical environmental economics,
resource economics and ecological economics. [10]
Resource economics: Sees nature as a provider of energy and materials. Is an
anthropocentric view. Interdisciplinary. Looks at sustainability and the interdependence of
economic and ecological systems. For this type of economics, natural sciences are needed
to gain an understanding of economic/environmental problems.
Primary problem: limited stocks and the cake-eating problem.
Resources in conventional economics are thought to be Labour, Capital Land and energy.
They can be subdivided in the following categories:
In a simple model, the relationship between nature and the economy can be described as
nature:
1. Being a source of inputs for economic activity
2. Nature as a sink for wastes from economic activities.
Firms and households substract resources, and put wastes in the waste sink function.
Among each other they trade labour and commodities and money.
It can be further extended by assigning 4 basic functions to the environment:
1. Resource and energy base
2. Amenity services
3. Waste sink
4. Life support functions for humans
Ecological economics
-Thermodynamics –laws of physics about matter and energy
-Matter evolves –through adaptation and learning, evolution, or positive feedback loops,
occur
-Steady state – resources for production and pollutants are kept steady
-Distribution of rights is important for sustainability as whoever owns the right controls how
that good is used, the type of products produces, and who consumes the goods
-Ecology defined as the ―study of the economy of nature‖ and economics as the ―ecology of
humans‖ – at its core, ecology is the ―relationship of organisms to their environment‖
-ecology and economics exhibits nonlinear dynamics and is constrained and structured by
flows of energy
-Externalities needs to be incorporated into the market through more extensive valuation
techniques
-Uses a transdisciplinary approach – necessary for construction and analysis of wicked
problems
Neoclassical Economics
-Markets guide humans –
-Resources are scarce –
-Diminishing marginal returns on the basis that local systems have negative feedback loops
-Markets have externalities that do not affect operation of market
-There is an efficient use of a resource over time that is determined by the interest rate and
price
, -Approach is often linear (restricted to such by mathematics) and developed in isolation from
other areas of study
-Natural capital can be replaced with built or human capital
For ecological economics there are two kinds of capital: Natural and manmade.
Consequently, there are two sources for our welfare: Services of natural capital (ecological
services) and manmade capital. And that’s the main biggest difference between the
conventional (neoclassical) and ecological economics. Conventional economists have a
narrow minded focus on manmade capital and services. They usually ignore that an intact
ecology provides us with the most essential products and services like clean air and water,
mild climate, food, medical plants, erosion prevention, recreation, meaning and enjoyment in
life.
2. Differentiate between environmental, economic and regulatory impact analysis.
[10]
Environmental Impact Analysis
An environmental impact analysis (EIA) is essentially an identification and
study of all significant environmental repercussions stemming from a course
of action. For the most part, these focus on impacts that are expected to flow
from a proposed decision, although retrospective EIAs are of great value also,
especially when they are done to see if earlier predictions were accurate. EIAs
can be carried out for any social action, public or private, industrial or domestic,
local or national. They are largely the work of natural scientists, who focus
on tracing out and describing the physical impacts of projects or programs,
following through the complex linkages that spread these impacts through the
ecosystem. They do not directly address the issue of placing social values on
these impacts.
Many countries have laws requiring environmental impact studies when
substantial public programs and projects are under consideration, as well
as private projects in some cases. In the United States, environmental impact
analyses are mandated by the National Environmental Policy Act of
1970 (NEPA). The resulting environmental impact statements (EIS’s) are primarily
the work of natural scientists, yet economists have a distinct role to play.
It is not only ecological linkages through which environmental impacts
spread; they also spread through economic linkages. Suppose, for example,
it is proposed to build a dam that will flood a certain river valley while providing
new flat-water recreation possibilities. A substantial part of the environmental
impact will stem from the inundation itself and the resulting
losses in animals and plants, wild-river recreation, farmland, and so on. But
much also could come from changes in patterns of behavior among people
affected by the project. Recreators traveling into and out of the region could
affect air pollution and traffic congestion. New housing or commercial development
spurred by the recreation opportunities could have negative environmental
effects. Thus, to study the full range of environmental impacts from the dam, it
is necessary to include not just the physical effects of the dam and its water impoundment,
but also the ways in which people will react and adapt to this new facility.
Economic Impact Analysis
When interest centers on how some action—a new law, a new technological
breakthrough, a new source of imports, and so forth—will affect an economic
system, in whole or in terms of its various parts, we can speak of economic
impact analysis. In most countries, especially developing ones, there is usually
wide interest in the impact of environmental regulations on economic growth
rates. Sometimes the focus will be on tracing out the ramifications of a public
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