Economic growth and strategies

The main economic resources (natural, human and manufactured capital) and types of economic systems (command, mixed, market). Measures of life and environmental quality. Concept of externalities. Principles essential to building a sustainable economy.

Рубрика Экономика и экономическая теория
Вид контрольная работа
Язык английский
Дата добавления 01.12.2012
Размер файла 17,3 K

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1. Economic systems and environmental problems

Economic resources:

1) Natural capital (natural resources) - earth's resources and processes that sustain living organisms, including humans (goods and services produced by the earth's natural processes).

These include: the planet's air, water, and land; nutrients and minerals in the soil and deeper in the earth's crust; wild and domesticated plants and animals (biodiversity); and nature's dilution, waste disposal, pest control, and recycling services.

2) Manufactured capital - items made from earth capital with the help of human capital.

This includes: tools, machinery, equipment, factory buildings, and transportation and distribution facilities.

3) Human capital - people's physical and mental talents.

Workers sell their time and talents for wages. Managers take responsibility for combining earth capital, manufactured capital, and human capital to produce economic goods.

Major types of economic systems:

1) Command economic system or centrally planned economy - all economic decisions are made by the government.

2) Market economic system - all economic decisions are made in markets, in which buyers (demanders) and sellers (suppliers) of economic goods freely interact without government or other interference. All buying and selling is based on pure competition.

3) Mixed economic system - fall somewhere between the pure market and pure command systems.

Economic growth - an increase in countries' capacity to provide goods and services for people's final use (accomplished by means of population growth - more consumers and producers, or more consumption per person, or both).

Sustainability - meeting the needs of today without degrading the environment for future generations.

Ecologically sustainable development, or Sustainable development - the development that meets the needs of the present generations without compromising the ability of future generations to meet their own needs” (Brundtland Commission 1987).

Sustainable living in economic system (compare and contrast)

Industrial age

Sustainability or ecological age

Multinational corporations

Community-based economics



Limitless progress

Limits to grow

Economic growth

Steady state, development

No accounting of nature

Economics based on ecology

2. Measures of life and environmental quality

Economic growth is usually measured by an increase in a country's GNP.

Gross national product (GNP) - the market value in current dollars of all goods and services produced within and outside of a country by the country's businesses for final use during a year.

Per capita GNP - the GNP divided by the total population of a country.

Gross Domestic product (GDP) - the market value in current dollars of all goods and services produced within a country for final use during a year.

But GNP and GDP indicators are poor measures because they:

ь hide the negative effects (on humans and ecosystems) of producing many goods and services.

ь don't include the depletion and degradation of natural resources or earthy capital on which all economies depend.

ь hide or underestimate some of the positive effects of responsible behavior on society.

ь tell us nothing about economic justice.

Environmental indicators - those that can give more realistic picture by subtracting from the GNP and GDP things that lead to a lower quality of life and depletion of earth capital.

Ш Net Economic Welfare (NEW) (W. Nordhaus and J.Tobin, 1972):

It is estimated as GNP minus a price for pollution and other “negative” goods and services, included in the GNP.

Estimations show that pollution and natural resources degradation subtract 1-5% from GNP of developed countries and 5-15% for developing countries.

Ш Net national product (NNP) (Robert Repetto et al. Have applied to Indonesia and Costa Rica):

It includes the depletion or destruction of natural resources as a factor in GNP.

Ш Index of Sustainable Economic Welfare (ISEW) (Herman E. Daly at al. have applied to US):

This comprehensive indicator measures per capita GNP adjusted for inequalities in income distribution, depletion of nonrenewable resources, loss of wetlands, loss of farmland from soil erosion and urbanization, the cost of air and water pollution, and estimates of long-term environmental damage from ozone depletion and possible global warming. After rising by 42% between 1950 and 1976, this indicator fell 14% between 1977 and 1990.

Ш Genuine progress indicator (GPI) - (applied in US):

In 1973-1994 the GDP rose from $8000 to $17000 per person while GPI fell from $6500 to $4000 per person.

3. Concept of externalities

Internal costs - all the direct costs which are paid for by the seller and the buyer of an economic good.

Externalities - social costs or benefits not included in the market price (higher costs for health care and health insurance, higher taxes for pollution control). economic resource system

External cost - a harmful environmental or social cost that is borne by people not directly involved in buying or selling a product. These harmful effects are passed on to workers, the general public, and in some cases future generations.

Internalizing the external costs - a process of inclusion of the harmful external costs in the market prices of goods and services.

4. Economic strategies for pollution control

Marginal cost - the additional cost associated with one more unit of something.

Marginal cost of pollution - the added cost for all present and future members of society of an additional unit of pollution.

Marginal cost of pollution abatement - the added cost for all present and future members of society of reducing one unit of a given type of pollution.

Cost-benefit diagram - a diagram that helps policymakers make decisions about cost of a particular action and benefits that would occur if that action were implemented.

Optimum amount of pollution - the amount of pollution that is economically most desirable.

Command and control regulation - pollution control laws that work by setting limits on levels of pollution.

Incentive-based regulation - pollution control laws that work by establishing emission targets and providing industries with incentives to reduce emissions.

Economic solutions to pollution and resource waste


Internalizes external costs


International competitiveness

Administrative costs

Increase government revenue



Can encourage






Can encourage




Withdrawing harmful subsidies


Can encourage




Tradable rights






Green taxes






User fees


Can encourage




Pollution prevention bonds






* Unless more cost-effective and productive technologies are developed

5. Solutions of reducing poverty

Poverty - the inability to meet one's basic economic needs.

The World Bank's definition of poverty is the income of $1 per day (one of every five people on the planet).

Poverty causes premature deaths and preventable health problems. It also tends to increase birth rates and often pushes people to use potentially renewable resources unsustainably in order to survive.

The wealth gap

The richest fifth (20%) of the world's population receive 80% of global income, and the poorest fifth (80%) has only 20% of income.

Poverty reducing solutions:

- to forgive at least 60% of the almost $2 trillion that developing countries owe to developed countries and international lending agencies;

- to increase the nonmilitary aid to developing countries from developed countries;

- international lending agencies should be required to use a standard environmental and social impact analysis to evaluate any proposed development project;

- to establish policies that encourage both developed and developing countries to slow population growth and stabilize their populations

6. Sustainable strategies on economy

Use a mix of regulations and market-based approaches to reward earth-sustaining behavior by businesses and consumers and discourage earth-degrading behavior.

Principles essential to building a sustainable economy


- Reduce population growth.

- Reduce resource consumption and waste by reducing demand, increasing product durability, increasing efficiency.

- Recycle, reuse, and compost to the maximum extent possible.

- Develop a wide range of renewable energy resources.

- Protect and conserve renewable resources, such as farmland, fisheries, forest, grassland, air, and water.

- Improve renewable resource management to ensure sustainability.

- Repair past damage to natural resources by replanting forests and grasslands, reseeding roadsides, restoring streams, cleaning groundwater, and reducing overgrazing.

- Increase national and regional self-sufficiency by using renewable resources whenever possible.

- Support sustainable development projects in developing nations.

- Reduce poverty.

- Develop sustainable ethics and promote individual and corporate responsibility and action.

- Improve social conditions by promoting democracy, justice, and a more equitable distribution of wealth.

- Work for global peace and cooperation.

Some policy tools:

- Environmental education programs.

- Green taxes and full-cost pricing requirements for business

- Alternative measures (indicators) of progress, such as the NEW and ISEW, that look at a wide range of economic, social, and environmental conditions.

- Laws that harness market forces, including:

1) economic disincentives

2) economic incentives

3) tradeable and marketable permits

4) laws that eliminate market barriers that promote inefficient resources use

5) laws that remote subsidies of environmentally destructive activities.

The majority of Earth's population, located in China, India and other developing countries is reasonably claiming the rights for benefits of modern civilization. These people want to live in modern houses, have a better meals, cars and better health care. Economics globalization leads to creation of more works, construction of factories in any country with sufficiently qualified and unassuming workers. This means, that the use of natural resources and accompanying energy use will continue their increase even faster, than the increase in Earth's population. With population size doubling in size during 1990-2050, the income per capita will increase in 2,4 times based on estimations of UNO's experts, energy use - in 2,6 times, water use - in 1,5 times. The total product of the world should increase in 4,5 times during this period.

Key terms

Natural capital

Manufactured capital

Human capital

Command economic system Market economic system

Mixed economic system

Economic growth


Sustainable development

Gross national product (GNP)

Gross Domestic product (GDP)

Net Economic Welfare (NEW)

Net national product (NNP)

Index of Sustainable Economic Welfare (ISEW)

Genuine progress indicator (GPI) Internal costs


External cost

Internalizing the external costs

Marginal cost of pollution

Marginal cost of pollution abatement Cost-benefit diagram

Optimum amount of pollution Command and control regulation

Incentive-based regulation


Questions for review:

1. Compare and contrast Natural, manufactured and human capitals.

2. Differ Economic growth and Sustainable development.

3. Describe the GNP/GDP and its strengths and weaknesses.

4. What are alternatives to measure life and environmental quality?

5. Define the term “externality” and describe how externalities can be internalized. What are the benefits of doing this?

6. What is the economically optimal level of pollution control?

7. Describe a sustainable economy. What are the main goals and some policy instruments?

Make a synopsis: Daniel D. Chiras, “Environmental Science: Creating Sustainable Future”

1. Make a precis (of 200 words) of any paragraph:

“Corporate reform: Greening the corporation” (p.634-635).

“Green products and green seals of approval” (p.635-636).

“Environmental protection versus jobs: problem or opportunity?” (p.638-640)

2. Draw the graphs: Figures 26-4 (p.618); 26-6 and 26-7 (p.626). Title them.

Critical thinking:

1. Analyze the following statement: “Economic growth is essential to a healthy economy”.

2. Analyze the following statement: “The GNP is a fundamentally sound economic measure and a good indicator of the well-being of a nation's people because economic health means a higher standard of living for all”.

3. Analyze the following statement: “Cleaning up the environment will put thousands of people out of work. We simply can't afford to do it”.

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