The Economic Approach
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People pollute because it is the cheapest way they have of solving a certain very practical
problem: how to dispose of the waste products remaining after production and consumption of
a good
Macroeconomic Questions
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early stages of a country's economic development, environmental degradation increases until it
eventually peaks and falls in later stages of development
How are natural resource and environmental economics related?
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How to efficiently extract, harvest or use natural capital inputs over time.
How we can mitigate the flow of residuals so they cause less damage to the natural
environment
to reduce the mass of residuals disposed of in the natural environment, the quantity of natural
capital inputs taken into the economics system must be reduced.
Sustainability of our Environment and Economy

The trade-off that exists between production of goods and services and environmental quality
can be demonstrated using a production possibility curve
Types of Pollutants
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Accumulative versus non-accumulative pollutants.
o A classic example of a non-accumulative pollutant is noise; once the noise stops, it is no
longer in the environment.
o At the other extreme are accumulative pollutants. These are residuals that remain in the
environment without breaking down or decaying at such a slow rate that the stock of
these pollutants builds up over time (e.g., nuclear waste, plastics)
Local versus regional versus global pollutants.
o Local easier to deal with because it is smaller
Point source versus non-point source pollutants
o Smoke stack point source
o Run off water non point source
Continuous versus episodic emissions.
o Emissions from power plants is continuous
o Episodic would be oil spills
Partial Equilibrium
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Partial equilibrium (PE) analysis of one market always makes the assumption that all relevant
variables except the price in question are constant
prices of all substitutes and complements, as well as income levels of consumers are constant
Demand curve
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it relates the market quantity demanded to a given price; and
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it relates marginal social benefit (in dollars) to a given quantity of a good.
Supply
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the individual firm’s marginal cost curve becomes its supply curve and likewise, the industry’s
marginal cost curve becomes the industry (or market) supply curve
the supply curve is the marginal social cost curve1 and if we wanted to calculate the total cost of
production, we would (in words) add the marginal cost of the first unit plus the marginal cost of
the second unit, plus the marginal cost of the third unit and so on.