Economics Project

1.Introduction: Natural Capital can be defined as the world’s stocks of

natural assets which include geology, soil, air, water and all living things. It
is from this Natural Capital that humans derive a wide range of services,
often called ecosystem services, which make human life possible.
These are resources that exist without actions of humankind. Some natural
resources such as sunlight and air can be found everywhere however, most
resources only occur in small sporadic areas. There are very few resources
that are considered inexhaustible (will not run out in foreseeable future) –
these are solar radiation, geothermal energy, and air (though access to
clean air may not be). The vast majority of resources are theoretically
exhaustible, which means they have a finite quantity and can be depleted if
managed improperly.
*ROLE OF NATURAL RESORCE IN DETERMINATION OF
INCOME AND OUTPUT: Ultimately, nature is priceless. However, it is
not valueless, and there have been many studies that have calculated
Natural Capital’s value in financial terms. For example, street trees in
California provide $1 billion per year in ecosystem services, through
atmospheric regulation and flood prevention, and Mexico’s mangrove
forests provide an annual $70 billion to the economy through storm
protection, fisheries support, and ecotourism.
In 2013, the TEEB for Business Coalition published a famous report which
estimated that the world's primary production and processing sectors are
responsible for ‘environmental externality’ costs totalling a staggering
US$7.3 trillion annually. A year later, a study published in the journal of
Global Environmental Change revealed that the total value of the World’s
ecosystem services amounted to twice as much as global aggregate GDP
– as much as $124.8 trillion per year.
Rest of determining the level of income (from book)
2.Types of national asset:
*1)Natural capital: Natural capital is the world's stock of natural
resources, which includes geology, soils, air, water and all living organisms.
Natural capital assets provide people with a wide range of free goods and
services, often called ecosystem services, which underpin our economy
and society and some of which make human life possible. [3][4] It is an
extension of the economic notion of capital (resources which enable the
production of more resources) to goods and services provided by the
natural environment. For example, a well-maintained forest or river may
provide an indefinitely sustainable flow of new trees or fish, whereas over-
use of those resources may lead to a permanent decline in timber
availability or fish stocks. Natural capital also provides people with essential
services, like water catchment, erosion control and crop pollination by
insects, which in turn ensure the long-term viability of other natural
resources. Since the continuous supply of services from the available
natural capital assets is dependent upon a healthy, functioning
environment, the structure and diversity of habitats and ecosystems are
important components of natural capital.[5] Methods, called 'natural capital
asset checks', help decision-makers understand how changes in the
current and future performance of natural capital assets will impact on
human well-being and the economy. The services that nature provides for
free are often not accounted for and, therefore, not properly valued by
decision-makers. We evaluate the benefits that nature provides and
calculate the economic cost of these services if we had to provide them
ourselves.
*2)Physical capital: In economics, physical capital or just capital is a
factor of production (or input into the process of production), consisting of
machinery, buildings, computers, and the like. The production function
takes the general form Y=f(K, L), where Y is the amount of output
produced, K is the amount of capital stock used and L is the amount of
labor used. In economic theory, physical capital is one of the three
primary factors of production, also known as inputs in the production
function. The others are natural resources (including land), and labor—the
stock of competences embodied in the labor force. "Physical" is used to
distinguish physical capital from human capital (a result of investment in the
human agent), circulating capital, and financial capital.[1][2] "Physical capital"
is fixed capital, any kind of real physical asset that is not used up in the
production of a product. Usually the value of land is not included in physical
capital as it is not a reproducible product of human activity.

*3)Human capital(any other types of human capital from

book): Human capital is the skill, talent, and productivity that employees
bring to a company. Coined by University of Chicago economist Theodore
Schultz in 1964, the term refers to capital produced by investing in
knowledge. HOW IT WORKS (EXAMPLE): Better skills can increase an
employee's value in the workplace, and an employer that obtains highly
skilled employees can therefore gain a significant competitive advantage
via human capital. Human capital is largely responsible for innovation,
which can also be a tremendous competitive advantage for companies.
Accordingly, companies are usually very interested in investing in and
acquiring human capital. They do this via recruiting new employees,
training existing employees, and ensuring that the relationships between
employees and their managers are positive.

There are two kinds of human capital: specific and general. Specific human
capital refers to knowledge and skills that few find useful and are willing to
pay for. For example, knowing how to operate a proprietary machine that is
owned and operated by Company XYZ might be a skill that only Company
XYZ is willing to pay for. General human capital refers to knowledge and
skills that many employers find useful, such as knowing accounting,
knowing how to transplant a heart, or knowing how to design a bridge.
WHY IT MATTERS: Employment is essentially the purchase and sale of
human capital: employees own their talents, skills, and time, and they sell
these assets to companies in return for money. This is the idea underlying
the philosophy that employees are really consultants who sell their time
and expertise to clients, and that the value of one's labor is not always
based on his or her amount of physical exertion but on the market value of
his or her knowledge and skills. Some economists argue that market rates
are not the only thing that establishes the value of skills and knowledge;
personal connections, prestigious schooling, and character can also
influence the value of one's human capital.
Human capital tends to migrate in global economies, most often from poor
places to richer places. Some economists argue that this "brain drain"
makes poor places poorer and rich places richer.

3.HARM OF DEPLETION OF NATURAL CAPITAL:

*VARIOUS HAZARDOUS: Increase in the sophistication
of technology enabling natural resources to be extracted quickly and
efficiently. E.g., in the past, it could take long hours just to cut down one
tree only using saws. Due to increased technology, rates
of deforestation have greatly increased

 A rapid increase in population that is now Population growth#Human

population growth rate/increasing gradually. The current number
of 7.132 billion humans consume many natural resources.

 Cultures of consumerism. Materialistic views lead to the mining

of gold and diamonds to produce jewelry, unnecessary commodities for
human life or advancement.

 Excessive demand often leads to conflicts due to intense competition.

Organizations such as Global Witness and the United Nations have
documented the connection.

 Non-equitable distribution of resources

Natural resources are not limitless, and the following consequences can
arise from the careless and excessive consumption of these resources:

 Deforestation

 Desertification

 Extinction of species

 Forced migration

 Soil erosion

 Oil depletion

 Ozone depletion

 Greenhouse gas increase

 Extreme energy

 Water pollution

 Natural hazard/Natural disaster

*Sustainable development : (*meaning and *need, check phone !

Book(pg 117))

4.OBJECTIVES:
Check diary and book!

5.PRODUCTION POSSIBILITY CURVE :

*MEANING : A production–possibility frontier (PPF) or production
possibility curve (PPC) is a graphical representation of possible
combinations of two goods (such as butter and guns) that can be produced
with constant technology and resources per unit of time, such that more of
one good could be produced only by diverting resources from the other
good, resulting in less production of it; i. e. production tradeoffs, usually for
an economy, but which can also be interpreted as applying for an
individual, household, etc. Graphically bounding the production set for fixed
input quantities, the PPF curve shows the maximum possible production
level of one commodity for any given production level of the other, given the
existing state of technology. By doing so, it defines productive efficiency in
the context of that production set: a point on the frontier indicates efficient
use of the available inputs (such as points B, D and C in the graph), a point
beneath the curve (such as A) indicates inefficiency, and a point beyond the
curve (such as X) indicates impossibility.
The combination represented by the point on the PPF where an efficient
economy operates (which is obtained by tangency with the highest
individual or social indifference curve, not shown in the graph) presents the
priorities or choices of the modeled agent, such as the choice of having
more butter produced and fewer guns, or vice versa.

*Objectives: (from the book)

**look into diary rn**
*Assumptions: (from the book)
*Explanation with example: (from the book)
*Characterstics: (from the book)(include marginal utility,inside &
outside the curve).

6. FINDINGS:
*Explanation of depletion with the help of ppc :
Pg number 45 and 46(look into diary)
*Technological improvement :
Technology is the advancement of the society as a whole. Better
technology means that you can figure out more efficient production
techniques thereby leading the economy to create a scope to move the
PPC further to the right. In short, better technology means more production
with the scarce resources hence the possibility to move to an upper PPC at
a point which was previously unattainable(from the book).
*Economic growth: (from the book)

7.Conclusion: