ENVIRONMENTAL ECONOMICS

ESDM-2109
LECTURE: 4
 Environmental Resources
• An environmental resource is any material, service, or
information from the environment that is valuable to society.
• This can refer to anything that people find useful in their
environs, or surroundings. Food from plants and animals,
wood for cooking, heating, and building, metals, coal, and oil
are all environmental resources.
• Clean land, air, and water are environmental resources, as are
the abilities of land, air, and water to absorb society's waste
products.
• Heat from the sun, transportation and recreation in lakes,
rivers, and oceans, a beautiful view, or the discovery of a
new species are all environmental resources.
• Before the Industrial Revolution, for example, people relied
on their own strength and their animals for work and
transportation.
• The invention of the steam engine in the 1850s radically
altered peoples' ability to do work and consume energy.
• Today we have transformed our environment with
machines, cars, and power plants and in the process, we
have burnt extraordinary amounts of coal, oil, and natural
gas.
• Some predict that world coal deposits will last another 200
years, while oil and natural gas reserves will last another
one hundred years at current rates of consumption. This
rate of use is clearly not sustainable.
• The terms finite and infinite are important because they
indicate how much of a given resource is available, and how
fast people can use that resource without limiting future
supplies.
 Types of Natural Resources

source of origin, the state of

development, and the renewability of the
resources.
 source of origin

• Biotic

• Abiotic
 renewability:
• Renewable natural resources

• Non-renewable natural resources:

Role of Economics in Environmental
Management

Circular Flow Model

•Goods and services flow through the
economy in one direction while money flows
in the opposite direction.
CIRCULAR FLOW MODEL
•Product (Output Markets) -
The markets in which goods and services
are exchanged.

• Input (Factor Markets)- The markets in

which the resources used to produce
goods and services are exchanged.
 Significance of the study of Circular Flow
✓Measurement of National Income - National income is an
estimation of aggregation of any economic activity of the
circular flow. It is either the income of all the factors of
production or the expenditure of various sectors of the
economy.
✓Knowledge of Interdependence - Circular flow of income
signifies the interdependence of each activity upon one
another. If there is no consumption, there will be no demand
and expenditure which in fact restricts the amount of
production and income.
✓Unending Nature of Economic Activities - It signifies that
production, income, and expenditure are of unending nature,
therefore, economic activities in an economy can never come
to a halt. National income is also bound to arise in the future.
✓Injections and Leakages
 Leakages and Injections
•Leakage means withdrawal from the flow.
When households and firms save part of their
incomes it constitutes leakage. They may be
in form of savings, tax payments,
and imports. Leakages reduce the flow of
income.
•Injection means introduction of income into
the flow. When households and firms borrow
the savings, they constitute injections.
Injections increase the flow of income.