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Applied Microeconomics

Applied Microeconomics Applied Microeconomics Economics of the Environment ECONOMICS OF THE ENVIRONMENT The environmental problem use of the environment as: an amenity a source of primary products a dump for waste The economy and the environment Factor services Goods and services

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Applied Microeconomics

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  1. Applied Microeconomics

  2. Applied Microeconomics Economics of the Environment

  3. ECONOMICS OF THE ENVIRONMENT • The environmental problem • use of the environment as: • an amenity • a source of primary products • a dump for waste

  4. The economy and the environment Factor services Goods and services Waste Amenity value Resources (Clipart for the environment: e.g. countryside scene)

  5. ECONOMICS OF THE ENVIRONMENT • The environmental problem • use of the environment as: • an amenity • a source of primary products • a dump for waste • conflicts between these uses

  6. ECONOMICS OF THE ENVIRONMENT • The environmental problem • use of the environment as: • an amenity • a source of primary products • a dump for waste • conflicts between these uses • population pressures and limited resources

  7. Total damage Accelerating environmental damage Environmental damage O W1 Waste

  8. ECONOMICS OF THE ENVIRONMENT • The environmental problem • use of the environment as: • an amenity • a source of primary products • a dump for waste • conflicts between these uses • population pressures and limited resources • case for optimism

  9. ECONOMICS OF THE ENVIRONMENT • An optimum use of the environment • different approaches to sustainability • free-market approach • social efficiency approach • conservationist approach • Gaia approach • making optimum decisions

  10. MCpollution P4 P3 P2 Q2 Q3 MB-MC Optimum level of an activity that involves pollution Costs and benefits (£) Q4 Q1 O Output of good

  11. ECONOMICS OF THE ENVIRONMENT • An optimum use of the environment • different approaches to sustainability • free-market approach • social efficiency approach • conservationist approach • Gaia approach • making optimum decisions • Market failures

  12. ECONOMICS OF THE ENVIRONMENT • An optimum use of the environment • different approaches to sustainability • free-market approach • social efficiency approach • conservationist approach • Gaia approach • making optimum decisions • Market failures • environment as a public good

  13. ECONOMICS OF THE ENVIRONMENT • An optimum use of the environment • different approaches to sustainability • free-market approach • social efficiency approach • conservationist approach • Gaia approach • making optimum decisions • Market failures • environment as a public good • externalities

  14. MCpollution P4 P3 Q3 MB-MC Optimum level of an activity that involves pollution Costs and benefits (£) Q4 Q1 O Output of good

  15. ECONOMICS OF THE ENVIRONMENT • An optimum use of the environment • different approaches to sustainability • free-market approach • social efficiency approach • conservationist approach • Gaia approach • making optimum decisions • Market failures • environment as a public good • externalities • ignorance

  16. ECONOMICS OF THE ENVIRONMENT • An optimum use of the environment • different approaches to sustainability • free-market approach • social efficiency approach • conservationist approach • Gaia approach • making optimum decisions • Market failures • environment as a public good • externalities • ignorance • inter-generational problems

  17. ECONOMICS OF THE ENVIRONMENT • Market-based policies • extending private property rights • charging for use of the environment

  18. MSC P2 MB = MSB L2 An emissions charge Costs and benefits (£) P1 = 0 L1 Level of emission

  19. ECONOMICS OF THE ENVIRONMENT • Market-based policies • extending private property rights • charging for use of the environment • environmental ('green') taxes

  20. Socially efficient green tax P1 Q1 A socially efficient green tax MCpollution Costs and benefits (£) Q2 O MB-MC Output of good

  21. Green tax revenues as a % of GDP

  22. Green tax revenues as a % of GDP

  23. ECONOMICS OF THE ENVIRONMENT • Non-market-based policies • command-and-control systems • technology-based standards • ambient-based standards • social-impact standards • voluntary agreements • education

  24. ECONOMICS OF THE ENVIRONMENT • Tradable permits • how they work • assessment of the system • Can we rely on governments? • game theory and international agreements

  25. Outcomes for countries from strategiesof pollution reduction Other countries’ strategy None cut pollution Some cut pollution All cut pollution A B C Small loss for USA Gain for countries not cutting pollution Large loss for USA Slight gain for other countries Cut pollution Moderate net gain for all USA’s strategy D E F Don’t cut pollution High gain for USA Small gain for other countries Fairly high gain for USA Loss for other countries No gain for any country

  26. Applied Microeconomics Traffic Congestion and Transport Policies

  27. TRAFFIC CONGESTION AND TRANSPORT POLICIES • The allocation of road space • demand for road space • a derived demand • determinants of demand

  28. Increase in car ownership Cars per thousand population UK Energy and Transport in Figures (EC, 2002); Federal Highway Administration: http://www.fhwa.dot.gov/ohim/qfvehicles.htm

  29. Increase in car ownership USA Cars per thousand population UK Energy and Transport in Figures (EC, 2002); Federal Highway Administration: http://www.fhwa.dot.gov/ohim/qfvehicles.htm

  30. Increase in car ownership USA Belgium Sweden Cars per thousand population UK Energy and Transport in Figures (EC, 2002); Federal Highway Administration: http://www.fhwa.dot.gov/ohim/qfvehicles.htm

  31. Increase in car ownership USA Germany W Germany Belgium Sweden Cars per thousand population UK Energy and Transport in Figures (EC, 2002); Federal Highway Administration: http://www.fhwa.dot.gov/ohim/qfvehicles.htm

  32. Increase in car ownership USA Germany W Germany Belgium Sweden Cars per thousand population UK Spain Energy and Transport in Figures (EC, 2002); Federal Highway Administration: http://www.fhwa.dot.gov/ohim/qfvehicles.htm

  33. TRAFFIC CONGESTION AND TRANSPORT POLICIES • The allocation of road space • demand for road space • a derived demand • determinants of demand • the price and income elasticities of demand

  34. Motoring costs as % ofUK household expenditure: 2000/1 Motoring costs as % of household expenditure Quintile groups of household income

  35. Passenger transport in Great Britain (percentage of passenger kilometres by road)

  36. Passenger transport in Great Britain (percentage of passenger kilometres by road)

  37. Passenger transport in Great Britain (percentage of passenger kilometres by road)

  38. Passenger transport in Great Britain (percentage of passenger kilometres by road)

  39. Passenger transport in Great Britain (percentage of passenger kilometres by road)

  40. TRAFFIC CONGESTION AND TRANSPORT POLICIES • The allocation of road space • demand for road space • a derived demand • determinants of demand • the price and income elasticities of demand • supply of road space

  41. TRAFFIC CONGESTION AND TRANSPORT POLICIES • The allocation of road space • demand for road space • a derived demand • determinants of demand • the price and income elasticities of demand • supply of road space • short run

  42. TRAFFIC CONGESTION AND TRANSPORT POLICIES • The allocation of road space • demand for road space • a derived demand • determinants of demand • the price and income elasticities of demand • supply of road space • short run • long run

  43. TRAFFIC CONGESTION AND TRANSPORT POLICIES • Social optimum level of road usage • marginal social benefit • marginal social cost • congestion costs: time

  44. Time taken to travel between two points along a given road

  45. Time taken to travel between two points along a given road

  46. Time taken to travel between two points along a given road

  47. Time taken to travel between two points along a given road

  48. TRAFFIC CONGESTION AND TRANSPORT POLICIES • Social optimum level of road usage • marginal social benefit • marginal social cost • congestion costs: time • congestion costs: monetary

  49. TRAFFIC CONGESTION AND TRANSPORT POLICIES • Social optimum level of road usage • marginal social benefit • marginal social cost • congestion costs: time • congestion costs: monetary • environmental costs

  50. TRAFFIC CONGESTION AND TRANSPORT POLICIES • Social optimum level of road usage • marginal social benefit • marginal social cost • congestion costs: time • congestion costs: monetary • environmental costs • socially efficient level of road usage

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