HOW CLEAN IS CLEAN ENOUGH?
WHAT IS THE RIGHT AMOUNT OF
POLLUTION?
WHAT IS THE RIGHT AMOUNT OF
RAINFOREST?
WHAT IS THE RIGHT AMOUNT OF WHALES?
ECONOMIC CONCEPTS
SOCIAL GOALS
ALLOCATION OF RESOURCES
ALLOCATIVE EFFICIENCY
COST EFFECTIVENESS
NET VALUE
OBJECTIVES
 IDENTIFY ALTERNANTIVE SOCIAL GOALS IN
EVALUATING RESOURCE USE
 DEFINE ALLOCATIVE EFFICIENCY
 EXPLAIN HOW THE “RIGHT” AMOUNT OF A
PRODUCT TO PRODUCE IS FOUND, ASSUMING
THE SOCIAL GOAL OF ALLOCATIVE
EFFICIENCY
 APPLY THE ALLOCATIVE EFFICIENCY
CRITERION TO THE PRODUCT,
ENVIRONMENTAL QUALITY
WHAT ARE THE BROAD SOCIAL GOALS THAT WE MIGHT
CONSIDER AS WE DECIDE HOW NATURAL RESOURCES
SHOULD BE USED?
 ECONOMIC GROWTH
 FULL EMPLOYMENT
 EQUITY
 ENVIRONMENTAL PROTECTION
 INCOME GENERATION
 COST-EFFECTIVENESS
 SUSTAINABILITY
 ALLOCATIVE EFFICIENCY
 ENERGY EFFICIENCY
EFFICIENCY: WHAT DOES IT MEAN?
SUPPOSE THERE ARE TWO KINDS OF DRILL BITS
THAT MAY BE USED TO DRILL FOR OIL…ONE MADE
OF A SPECIAL STEEL ALLOY, THE OTHER OF
DIAMONDS. THE HARDNESS OF THE DIAMONDS
ALLOWS THE DIAMOND DRILL TO CUT THROUGH
10,000 FEET OF ROCK BEFORE IT HAS TO BE
REPLACED. THE STEEL BIT MUST BE REPLACED EVERY
2000 FEET. THE DIAMOND BIT COSTS $2000 WHILE
THE STEEL BIT SELLS FOR $300. WHICH DRILL BIT IS
MORE EFFICIENT?
AS WITH EVERYTHING IN ECONOMICS: IT DEPENDS!!!
ACTIVITY ONE ANSWERS
a) 1, 4, 3
b) $540, $440, $360, $420
c) 3 (produces 200 units
 Energy efficiency-
getting the most miles
per gallon
for the least cost)
 Cost efficiency-
producing the greatest
yield with fixed inputs
 Allocative efficiency-
getting the most value
from resources
How far down the curve should society choose to go
if its goal is allocative efficiency?