Group 6
Optimal Scale
Marginal Costs and Marginal Benefits
Marginal cost is the cost of producing one extra unit, and marginal benefit is the
benefit each additional unit produces. When growth continues past this point of optimal
scale it becomes uneconomic and the costs will outweigh the benefits. The Optimal Scale
equation, sometimes called the “when to stop rule”, describes that when the marginal or
extra costs (MC) of a service or product equals the marginal benefits (MB), growth
should be stopped.
MC=MB
(Needs citation)
For Further Understanding: For another explanation of MC=MB visit
http://www.enviroliteracy.org/article.php/1323.html
Activities:
1.) Watch this video on Marginal Cost by Richard Mckenzie and then answer the
following questions:
http://www.youtube.com/watch?v=adldDfQOSg8
-In the video, Richard Mckenzie uses bushels of tomatoes as an example of what? Create
you own example using a different set of goods. Post your idea on the module forum and
be sure to review other submissions.
2.) Marginal benefit is not easy to measure: to learn how to calculate and provide
additional background on the subject, visit http://williamking.www.drexel.edu/top/Prin/txt/MBch/Eco442.html (continue through the application
until the “demand” section starts.)
Optimal Scale and Just Distribution
Scale is defined as “the physical size of the economic subsystem relative to the
ecosystem that contains it”. Sustainable scale implies that there is a symbiotic
relationship between the economy and the ecosystem in which it exists that requires
conscious, transdisciplinary, thought prior to further growth. Reaching the goal of
sustainable scale will help to ensure that resources are available for future generations.
The allocation of resources in contemporary economic systems, via free market
action, focuses on solely the here and now. Ecological economics varies from
conventional economic thought by examining when growth turns uneconomic. Marginal
costs extend further than just the neoclassical factors of production (labor and capital),
and there are always environmental and social costs as well. These costs must be
quantified and balanced in order to reach an optimal scale.
Growth and development are dependent on natural resources. It would be naïve to
suggest that the eradication of poverty and world hunger are possible without further
growth and use of our finite resources. Just distribution, thus, is more realistically
attainable by changing the manner in which we grow.
Activities:
1. Watch the following video of a speech given by a coauthor of the book Cradle to
Cradle, Bill McDonough. After you have finished, reflect on the issues discussed
on the website’s blog. http://www.ted.com/index.php/talks/view/id/104
2. If we truly adopt the belief that just distribution is reliant on individual actions
changing the cultural norm then, as consumers, we are accepting a huge
responsibility. It is personal consumer decisions that will increase the demand for
socially responsible products. Think of five goods you consume, or use, on a daily
basis (i.e. water bottle, pen, shoes, jacket). Now try to find out what those goods
are made of. Is that information readily available to the public? Are there
potentially hazardous materials in that good that are not reported directly? Write a
letter of your opinions to any company that should be more open with this
information.
3. Watch the “Extraction” chapter in www.storyofstuff.com to learn more about the
consumption of resources. Think about how you can reduce consuming, or what
you can reuse or donate. Post your thoughts on the forum located on the website
for this module.
Law of Diminishing Utility
http://www.yazadjal.com/images/ch_lawofdmu.gif
Imagine the last time you ordered a pizza. When the delivery person dropped it
off, that initial smell of melted cheese and hot toppings filled your nose with delight.
When you picked up that first piece and took that bite, nothing could satisfy you more, or
could it? Does the pizza slice give you as much satisfaction as say, your laptop? This is
the idea of utility. The amount of total satisfaction you receive from consuming or
utilizing different goods or services differs depending on the good or service.
Although the laptop may provide more satisfaction to you in the long run, would
you rather have one more slice of pizza or one more laptop? This is the idea of marginal
utility, which is the additional satisfaction you get when you consume one additional
“unit” of that good or service. Most people would get more satisfaction from eating one
or two more slices of pizza than from buying one or two more laptops. The pizza would
satisfy hunger, while more laptops probably don’t serve a purpose. So although one good
may have more utility, when it comes to the marginal utility of that object it may drop
significantly compared to the other; it is all relative. This is called the Law of
Diminishing Marginal Utility, which explains that as additional “units” of a good or
service are consumed, their marginal utility decreases.
“It is not that pearls fetch a high price because men have dived for them; but on the
contrary, men dive for them because they fetch a high price.” - Richard Whately
Activity:
1.) If you want to discover the concept of Diminishing Marginal Utility for yourself, try
the following exercise: (you will need a package of mini-sized candy bars, and graph
paper)
1. Draw a graph in your notebook, labeling the vertical side 'Utility' and the
horizontal side 'Number of Candy Bars Consumed'.
2. Place the numbers one to 10 on the vertical side of the graph.
3. Eat one candy bar and then rate the utility (satisfaction) you receive from 1 to
10. (10 is the highest utility)
4. After each candy bar is consumed, rate your satisfaction and place a point on
the graph that represents this.
5. Continue until you notice a drop in your satisfaction. It is up to you how far
you want this drop to go to prove the law.
6. Get a drink of water.
7. Examine the graph that you created and review the definition of the Law of
Diminishing Marginal Utility and how it relates to the graph you created.
8. At what point did the marginal utility begin to decline? Why did the marginal
utility ratings decline?
(If you are unable to do this activity, you may watch this video of a class attempting a
similar activity: http://youtube.com/watch?v=1K-j8vZ4EiE)
2.) Watch this video, in which two separate goods are compared based on marginal
utility, and then answer the following questions.
http://youtube.com/watch?v=gKNvbxvYXA0
- Why are the soda and newspaper in their vending machines priced equally, yet
have different levels of marginal utility?
- Should the market prices of items reflect their marginal utility? Why or why
not?
3) Research the “Diamond-Water Paradox” (also known as the Paradox of Value). Why
is it not the total usefulness of diamonds or water that matters, but the usefulness of each
“unit” of water or diamonds? How does this relate to Adam Smiths’ “Labor Theory of
Value”?
http://upload.wikimedia.org/wikipedia/commons/d/d9/DiamondWater_paradox.png
Group 8
Open, Closed, and Isolated Systems
An open system, is a system which takes in and gives out both matter and energy. In
ecological economics we see that our economy can be classified as an open system. The
Earth on the other hand is a closed system because it imports and exports energy, but
matter generally stays within the system and does not actually flow in or out of it. An
isolated system is one in which matter or energy cannot enter or exit. These three
systems build upon each other; an isolated system contains both the closed and open
systems, and a closed system contains an open system.
If you look at the Universe as an isolated system, you can see the planet Earth inside of it.
Furthermore, within the Earth as a system you find our economy. When talking about the
matter and energy concept in the context of an economy, they can be considered the
materials and energy used to create all of the everyday objects we use. Energy is used to
draw matter from the earth, and then more energy is used to transform the matter into
useful items.
The throughput of the economy takes matter and energy from the planet, uses it, and
deposits waste. The economy is considered an open system for this reason, which means
that we have an ability to control it. Humans can put in as much matter and energy as we
desire, but only to a point. Since the earth is a closed system, the economy is limited to
the finite amount of materials are present. The economy must be regulated with this in
mind in order to not overextend the limited matter that is transformable on this planet.
Open System
http://www.uwsp.edu/geo/faculty/ritter/geog101/textbook/earth_system/types_of_system
s.html
Closed System
http://www.uwsp.edu/geo/faculty/ritter/images/misc/closed_system.jpg
Isolated System
http://lifeafterwcg2.files.wordpress.com/2007/12/universe.jpg
For Further Understanding: Read more about the economy as a subset of the ecosystem
at: http://www.eoearth.org/article/An_Introduction_to_Ecological_Economics_(e-book
Activities
1) Limit Water Usage - Use this activity to gain a better understanding of why it is
important to conserve the earth’s limited resources, and to imagine what life would be
like when resources are almost depleted.
Below you will find what looks like a reporting log. The activity is designed to elicit
emotion so please write down your frustration and thoughts freely. On day 1, limit
yourself to a 10 minute shower. On the second day shower for only 5 minutes, and on the
third day only for 2 and a half minutes. This is going to be extremely frustrating but think
about what it would be like if our water was really depleted so it was true!
For the second activity, the idea is the same but for flushing the toilet. One day you will
flush the toilet as frequently as needed. Record the number of flushes. On day 2 you will
flush the toilet half as frequently as you did on day 1 despite how many times you went to
the bathroom. On the third day, you will only flush half as much as you did on day 2.
Shower
Day 1 (10 Minutes)
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
Day 2 (5 Minutes)
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
Day 3 (2 ½ Minutes)
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
Toilet Flushing
Day 1 (As much as necessary)
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
Day 2 (Half as much as Day 1)
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
Day 3 (Half of Day 2)
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
2) Weighing of Waste
Step #1
Weigh all purchased goods including all food and packaging for a week. At the end of the
week add all of the daily weights and record the total. Throughout the week, make sure to
put all trash into one garbage can.
Day 1 __________________ Pounds of Purchased goods
Day 2 __________________ Pounds of Purchased goods
Day 3 __________________ Pounds of Purchased goods
Day 4 __________________ Pounds of Purchased goods
Day 5 __________________ Pounds of Purchased goods
Day 6 __________________ Pounds of Purchased goods
Day 7 __________________ Pounds of Purchased goods
G=Week's Total _________________ Pounds of Purchased goods
Step #2
Weigh the trash inside of the garbage can and record.
T=Week's Total _________________ Pounds of Trash from consumed goods and
packaging.
Step #3
Now Divide the total weight of the trash T by the total weight of the purchased goods G
and multiply by 100 to find the percent of waste produced during a week.
T/G*100= %waste
%Waste=______________________
Step #4 (The Dirty Part)
Separate the trash by recyclables, compostables, and other waste. Remove the recyclable,
reusable, and compostable items and weigh them. We will call this mass R for recyclable.
R/T gives the percent of recyclable trash thrown out.
%Recyclable Trash__________________
Step #5
Recycle, Reuse, or Compost all of the sorted items that you can. Consider any changes in
your consumptive patterns that could minimize the amount of waste you produce.