12.6 The Tradeoff between Economic Output and Environmental Protection
2 min read•june 24, 2024
The tradeoff between economic output and environmental protection is a crucial balancing act. Using the model, we can see how increasing one often means sacrificing the other due to limited resources.
The suggests that as economies grow, environmental quality initially worsens but then improves. Various policy approaches, from market-based instruments to international agreements, aim to find the sweet spot between economic growth and environmental .
The Tradeoff between Economic Output and Environmental Protection
Production Possibility Frontier (PPF) Model
Illustrates tradeoff between economic output and environmental protection
Maximum combinations of two goods given available resources and technology
Points along PPF are efficient (fully utilized resources)
Inside PPF inefficient, outside PPF unattainable (current resources and technology)
Increasing one good requires sacrificing the other
Limited resources allocated between objectives
of increasing output is environmental protection given up (vice versa)
PPF shape linear or concave
Linear implies constant tradeoff
Concave suggests increasing opportunity cost as more produced (law of increasing opportunity costs)
International agreements and cooperation address global challenges (climate change)
Paris Agreement coordinates emission reduction and sustainable development
Challenges include participation, compliance, equitable distribution of costs and benefits
Key Terms to Review (19)
Biodiversity: Biodiversity, or biological diversity, refers to the variety and variability of living organisms within a given environment. It encompasses the diversity of all life forms, including plants, animals, fungi, and microorganisms, and the complex ecosystems they inhabit.
Cap and Trade: Cap and trade is a market-based approach to controlling pollution by providing economic incentives for achieving reductions in the emissions of pollutants. It involves setting a limit or 'cap' on the amount of a pollutant that can be emitted, and then allowing those industries or entities that produce the pollutant to trade emission allowances or credits amongst themselves.
Carbon Taxes: A carbon tax is a fee imposed on the burning of carbon-based fuels (such as coal, oil, and natural gas) in order to reduce greenhouse gas emissions and mitigate the effects of climate change. The tax is typically levied on the amount of carbon dioxide (CO2) released into the atmosphere as a result of the consumption of these fossil fuels.
Circular Economy: A circular economy is an economic system that aims to eliminate waste and the continual use of natural resources. It is based on the principles of designing out waste and pollution, keeping products and materials in use, and regenerating natural systems.
Coase Theorem: The Coase Theorem is an economic principle that states that in the absence of transaction costs, private parties can negotiate to resolve conflicts over the use of resources in a way that maximizes economic efficiency, regardless of the initial allocation of property rights.
Consumerism: Consumerism is an economic and social order that encourages the acquisition of goods and services in ever-increasing amounts. It is a cultural orientation that equates personal happiness and social status with the consumption of material goods and services. Consumerism is closely tied to the tradeoffs between economic output and environmental protection, as increased consumption often leads to greater resource use and environmental degradation.
Cost-Benefit Analysis: Cost-benefit analysis is a systematic process for calculating and comparing the benefits and costs of a decision or project. It involves identifying, quantifying, and assigning monetary values to the potential positive and negative consequences of an action in order to determine whether the benefits outweigh the costs.
Ecological Footprint: The ecological footprint is a measure of human demand on the Earth's ecosystems. It represents the amount of biologically productive land and sea area required to supply the resources a human population consumes and to assimilate the associated waste. This concept is closely tied to the topics of international environmental issues and the tradeoffs between economic output and environmental protection.
Ecosystem Services: Ecosystem services are the direct and indirect benefits that humans derive from the natural environment and healthy ecosystems. These services are crucial for supporting and fulfilling human well-being and economic activities.
Environmental Impact Assessment: Environmental Impact Assessment (EIA) is a systematic process used to identify, predict, and evaluate the potential environmental effects of proposed projects, plans, or policies. It is a crucial tool for ensuring sustainable development and minimizing the negative impacts of human activities on the environment.
Environmental Kuznets Curve: The Environmental Kuznets Curve (EKC) is a hypothetical relationship between environmental quality and economic development. It suggests that as a country's income increases, its environmental degradation first increases and then, after reaching a certain level of income, it begins to decrease.
Environmentalism: Environmentalism is a social and political movement that focuses on protecting the natural environment and promoting sustainable practices. It encompasses a wide range of concerns, from preserving biodiversity and natural habitats to addressing issues like climate change, pollution, and resource depletion.
Externalities: Externalities are the unintended positive or negative consequences of an economic activity that affect parties not directly involved in the activity. They occur when the social costs or benefits of a transaction differ from the private costs or benefits, creating a divergence between private and social optimum.
Green Economy: A green economy is an economic system that is focused on generating sustainable economic growth and development while ensuring environmental protection, social inclusion, and the efficient use of natural resources. It aims to transition towards a low-carbon, resource-efficient, and socially inclusive economy.
Market Failure: Market failure occurs when the free market fails to allocate resources efficiently, leading to a suboptimal outcome for society. This can happen when there are externalities, public goods, information asymmetries, or other factors that prevent the market from reaching the socially optimal equilibrium.
Opportunity Cost: Opportunity cost is the value of the next best alternative that must be forgone when making a choice. It represents the tradeoffs individuals and societies make when deciding how to allocate scarce resources among competing uses.
Production Possibility Frontier: The production possibility frontier (PPF) is a curve that shows the maximum combination of two goods or services that an economy can produce given its available resources and technology. It represents the tradeoffs an economy faces in allocating its limited resources between different production alternatives.
Sustainability: Sustainability refers to the ability to meet the needs of the present without compromising the ability of future generations to meet their own needs. It is a holistic approach that considers the long-term balance between environmental, social, and economic factors to ensure the well-being of the planet and its inhabitants.
Tragedy of the Commons: The tragedy of the commons refers to a situation in which individuals, acting independently and rationally according to their own self-interest, will ultimately deplete or destroy a shared resource, even when it is not in anyone's long-term interest for this to happen. This concept is central to understanding the economic and environmental challenges surrounding the use and preservation of common resources.