environment and economics

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Economics plays an important role in making decisions about environmental issues. The values that we place on competing options often include price tags. It is therefore necessary to understand how economic models operate. In the classical view, the prices of goods and services in capitalistic systems are strongly influenced by supply and demand. Products that are in low supply command a high price, while those that are in high supply are cheap. Ideally, the system reaches an equilibrium at which it is not economical for a manufacturer to increase production. Learn more:

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The neoclassical view of the economy focuses on the flow of goods and services from producers (business) to consumers and the flow of capital and labor back to the producers. Continued economic growth is viewed as necessary and desirable. The neoclassical view does not factor in the value of the environment.

Natural resource economics expands the neoclassical view to incorporate the role of natural ecosystems as a source of materials and energy and as a place where wastes are recycled. Ecosystems are viewed to have fairly abundant natural resources and have a good ability to absorb wastes. Thus while the natural environment is valued, what it has to offer is viewed as inexpensive to obtain.

An alternative view called ecological economics places greater value on what natural ecosystems have to offer. Rather than have the environment recycle discarded human products, it sees this as a human responsibility. Ecological economics is also concerned with equitable distribution of resources and the rights of all members of the current generation as well as members of future generations. It advocates a steady-state that is stable and sustainable rather than an economy that requires continued growth.