Course Unit: ENVIRONMENTAL ECONOMICS, UNILAK Kigali by Aime MUYOMBANO
Learning outcomes
Having successfully completed, the module students should be able to demonstrate knowledge and understanding of: The concept of organization and society including analyzing organization theories and their starting assumptions; Organizational development introduction and purpose of practice of management; Problems of cooperative management such as value based management in cooperative characteristics; Cooperative principles vs management styles and members as entrepreneurs and their role in business development; Principles of risk and insurance in cooperative societies with the nature of risks and
Uncertainties in cooperatives Cognitive/Intellectual skills/Application of Knowledge At the end of the course candidates should be able to.
Understand the role of the society and people in cooperative management; Apply the social knowledge and experiences in cooperative organizational Development; Appreciate the different aspects of managing member-based organizations; Acquaint candidates with concepts of risks and management; Apply risk management skills in cooperative management; Understand the structure and operations of the insurance market.
Communication/ICT/Numeracy/Analytic Techniques/Practical Skills
Having successfully completed, the module students should be able to demonstrate knowledge and understanding of; Exhibit the understanding of how organizing society is important in making people to understand a common course; communicate theoretical knowledge of organization and society, risk and insurance in cooperative societies both in written and oral forms.
General transferable skills; having successfully completed the module students should be able to: Illustrate that he/she can use the gained competencies and skills effectively
Module aims
organization and society: Analyzing organization theories and their starting assumptions, assumptions about the nature of social services, assumptions about the nature of society; Organizational development: Introduction, a review of the development of modern organizational theory; Purpose of practice of management: The development of management theory, the content of management, forces shaping management structure and style, origins and development of value- based management; Problems of cooperative management
Indicative content
The concept of organization and society: Analyzing organization theories and their starting assumptions, assumptions about the nature of social services, assumptions about the nature of society; Organizational development: Introduction, a review of the development of modern organizational theory; Purpose of practice of management: The development of management theory, the content of management, forces shaping management structure and style, origins and development of value- based management; Problems of cooperative management: Value based management in cooperative characteristics, ethical management, principles of value based management, managing relationships, quality philosophies in commercial relationships; Cooperative principles vs management styles: Members as entrepreneurs and their role in business development, marketing and cooperation, cooperative selling and purchasing.
Principles of Risk and Insurance in Cooperative Societies: Introduction to cooperative enterprise, the nature of risks and uncertainties in cooperatives, cooperative risk assessment techniques, measurement of risks in cooperatives, the nature of cooperative insurance, importance of cooperative insurance, types of insurance, insurance covers for cooperatives and cooperators, the general insurance market in Rwanda.
Evaluation:
a. Assignment (Seminar power point Presentation and Scenarios)
b. CAT/PAT
c. Final Examination
d. Class attendance and participation will be highly taken into consideration
CHAP I. SCOPE OF ENVIRONMENTAL ECONOMICS
I.0 Introduction
The environment becomes one of the major concerns to the present economy because of the activities of man. The relationships between man and environment have been changing along the development process from generation to generation. Economists are concerned with increasing demand of resources and its implication on the natural environment, the environment provides food shelter, clothing, medicine, raw materials and other resources.
Economics is concerned with making best allocation of resources among competing alternatives; it is concerned with utilization of resources to ensure an improvement in welfare. There is a strong link between the environment and economics, humanity are faced with a lot of environmental problems which have economic dimensions.
Environmental Economics is that aspect of economics that deals with the interrelationships between the environment and economic development, it studies the ways by which a balance is stroked between the two, and it is also concerned with how the damage done can come to a halt or reversed.
I.1 Scope of Environmental Economics
To strike a balance between economic growth and the environment Pollution control from economic point of view The nature of consumption and utilization of resources as they are being depleted, therefore optimal use with minimal level of wastage is needed Limits to growth as growth must be controlled through taxes and other fiscal
Measures to make it optimal
I.1.1 Relationship between Environment and the Economy
Since the environment provides resources for economic activities, all economies should therefore be concerned with the following basic objectives, they are;
- Efficiency in the utilization of resources
- Equity in terms of distribution of income and resources as well as compensations
- Stability, such that taxes, charges and other control measures should not be too high to discourage/reduce output
- Growth, all economies aim at sustainable economic growth
- I.1.2 Man and Environment
The evolution and process of human civilization is a story of man in his struggles against nature man has to subject nature to satisfy his wants because he needs basic necessities of life and in his attempt to satisfy them, he not only conquers the immediate environment but jeopardizes the future of the next generation to come. This interrelationship is presented below;
I.1.3 Environmental Factors:
Land, Climate, Vegetation, Minerals, Water, Atmosphere and etc. Human Factors: Demography, Economy and Culture Technology Use of Natural Environment The Environment Changes Feedback and Alteration From the analysis above, one can see how the environment provides land, climate, forests, water bodies and other assets. Human factors inform of demography, culture and economy used technology to decide on how to use the assets provided by the environment and in so doing, the environment changes and the feedback is that it is altered from its natural formation.
I.1.4 Environmental Economics and Traditional Economics
Similarities and differences between Traditional Economics and Environmental Economics
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Traditional Economics
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Environmental Economics
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I.1.5 Environment in Economics
is a sub-field of economics that is concerned with environmental issues. Quoting from the National Bureau of Economic Research Environmental Economics program:
Environmental economics is distinguished from ecological economics in that ecological economics emphasizes the economy as a subsystem of the ecosystem with its focus upon preserving natural capital.
Environment: The 'biotic environment is the biotic and abiotic surrounding of an organism or population, and consequently includes the factors that have an influence in their survival, development and evolution.
Whereas the expression "the environment" is often used to refer to the global environment, usually in relation to humanity, the number of biophysical environments is countless, given that it is always possible to consider an additional living organism that has its own environment.
Natural environment including natural resources provides several goods, services and amenities to human beings and performs many important functions in the process of economic growth. Two of the important functions are: provision of inputs to production processes and assimilating the wastes generated in the process of production and consumption
Biosphere/ Environment
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Provides inputs for
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Economic growth, production of goods and services
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Absorbs wastes generated in the process of economic growth
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I.1.6 Environmental degradation in Economics
is the deterioration of the environment through depletion of resources such as air, water and soil; the destruction of ecosystems and the extinction of wildlife. It is defined as any change or disturbance to the environment perceived to be deleterious or undesirable. As indicated by the I=PAT equation, environmental impact (I) or degradation is caused by the combination of an already very large and increasing human population (P), continually increasing economic growth or per capita affluence (A), and the application of resource depleting and polluting technology (T).
Land degradation: undermines land productivity and poses a risk to food security, impacts on the quality of ecosystem services, deforestation and soil degradation contribute to climate change, Green Growth requires integrative approaches to land-use, focused on increasing productivity and food-security, while minimizing degradation of Africa’s natural assets.
I.1.6.1 Land degradation affects large parts of Africa.
I.1.6.2 International Economic system resilience in a globalized world
Globalization provides new opportunities, but also creates new risks through increasing inter-dependence.
Increasing resilience to exogenous economic shocks is critical, as African economies move forward
Changes in world price are for key African agriculture exports during 2012.
African livelihoods and economies are heavily dependent on agriculture. Increasing integration into world markets provides opportunities for growth but also increasing exposure to market price fluctuations.
Source: AfDB
The rate of deforestation in Africa is four Working on degraded land (Photo: Panos London
Times the world's average (RRI, 2009).
Some cases International economics loses around the World
Between July 2011 and mid-2012, a severe drought affected the entire East Africa region. Said to be "the worst in 60 years", the drought caused a severe food crisis across Somalia, Djibouti, Ethiopia and Kenya that threatened the livelihood of 9.5 million people
I.1.6.1 Water deterioration in Economics
One major component of environmental degradation is the depletion of the resource of fresh water on Earth. Approximately only 2.5% of all of the water on Earth is fresh water, with the rest being salt water. 69% of the fresh water is frozen in ice caps located on Antarctica and Greenland, so only 30% of the 2.5% of fresh water is available for consumption. Fresh water is an exceptionally important resource, since life on Earth is ultimately dependent on it.
The current top three uses of fresh water account for 95% of its consumption; approximately 85% is used for irrigation of farmland, golf courses, and parks, 6% is used for domestic purposes such as indoor bathing uses and outdoor garden and lawn use, and 4% is used for industrial purposes such as processing, washing, and cooling in manufacturing centers. Water scarcity is an increasing problem due to many foreseen issues in the future, including population growth, increased urbanization, higher standards of living, and climate change.
Inyange industry investment in Masaka Sector, threatened by uncontrollable floods Kigali: currently (2013-2014)
In 1964, Lake Chad measured 25,000 square kilometers. Its size has, however, shrunk to a mere 5 % of its original size.
I.1.6.2 Climate change and temperature in Economics
Climate change affects the Earth’s water supply in a large number of ways. It is predicted that the mean global temperature will rise in the coming years due to a number of forces affecting the climate, the amount of atmospheric
I.1.6.2.1 The Global Situation in Temperature Change Data
Thermal expansion of water and increased melting of oceanic glaciers from an increase in temperature gives way to a rise in sea level, which can affect the fresh water supply of coastal areas as well; as river mouths and deltas with higher salinity get pushed further inland, an intrusion of saltwater results in an increase of salinity in reservoirs and aquifers.
Uneven distributions of increased temperatures and increased precipitation around the globe results in water surpluses and deficits, but a global decrease in groundwater suggests a rise in sea level, even after meltwater and thermal expansion were accounted for, which can provide a positive feedback to the problems sea-level rise causes to fresh-water supply.
I.1.6.3 Climate change and precipitation in Economics
A rise in global temperatures is also predicted to correlate with an increase in global precipitation, but because of increased runoff, floods, increased rates of soil erosion, and mass movement of land, a decline in water quality is probable, while water will carry more nutrients, it will also carry more contaminants.
While most of the attention about climate change is directed towards global warming and greenhouse effect, some of the most severe effects of climate change are likely to be from changes in precipitation, evapo-transpiration, runoff, and soil moisture. It is generally expected that, on average, global precipitation will increase, with some areas receiving increases and some decreases
I.1.6.3.1 Adverse impacts of climate change
Threat to human life, health, livelihood, food security, drags development growth, drives the cycle of poverty, increases overall risks and vulnerabilit
Changes in precipitation affect the timing and magnitude of floods and droughts, shift runoff processes, and alter groundwater recharge rates. Vegetation patterns and growth rates will be directly affected by shifts in precipitation amount and distribution, which will in turn affect agriculture as well as natural ecosystems. Groundwater reserves will be depleted, and the remaining water has a greater chance of being of poor quality from saline or contaminants on the land surface.
I.1.6.3.2 Climates change situation in Rwanda
The annual mean temperature show a significant increasing trend between 1971 and 2010 of 0.35°C per decade for four stations across Rwanda. This increase is slightly higher than the observed global average of 0.27°C per decade from 1979 to 2005 (GovR, 2011)
I.1.6.4 Population growth in Economics
The available fresh water being affected by climate is also being stretched across an ever-increasing global population. It is estimated that almost a quarter of the global population is living in an area that is using more than 20% of their renewable water supply; water use will rise with population while the water is also being aggravated by decreases in stream flow and groundwater caused by climate change. Even though some areas may see an increase in freshwater supply from an uneven distribution of
Population increase over the last two decades, at least in the United States, has also been accompanied by a shift to an increase in urban areas from rural areas, which concentrates the demand for water into certain areas, and puts stress on the fresh water supply from industrial and human contaminants. Urbanization causes overcrowding and increasingly unsanitary living conditions, especially in developing countries, which in turn exposes an increasingly number of people to disease.
About 79% of the world’s population is in developing countries, which lack access to sanitary water and sewer systems, giving rises to disease and deaths from contaminated water and increased numbers of disease-carrying insects.
There has been no example of Population and rapid economic growth more remarkable than China.
To appreciate China’s accomplishment, take the example of Shenzhen, which is a city very close to Hong Kong in southern China. In 1980, Shenzhen was a small, mainly rural village of some 30,000 people and today with10 million people.
Figure 1.4: Shenzhen, 1980
I.1.6.5 Agriculture in Economics
Agriculture is dependent on available soil moisture, which is directly affected by climate dynamics, with precipitation being the input in this system and various processes being the output, such as evapotranspiration, surface runoff, drainage, and percolation into groundwater. Changes in climate, especially the changes in precipitation and evapotranspiration predicted by climate models, will directly affect soil moisture (humidity), surface runoff, and groundwater recharge.
I.2 Environmental Pollution
Pollution is the release by man of substances, chemicals and other products into the environment that adversely affects life and properties. It can also be a consequence of natural disaster. For example hurricanes often involve water contamination, oil spills or the release of hazardous materials into the environment.
The substances that are released into the environment are term pollutants. Pollutants can cause disease including cancer, allergies, asthma and etc. pollution can take various forms depending on the nature of pollutants and the damage it caused to the environment. We can therefore identify pollution to include that of air, water, land and noise pollution.
I.2.1 Economics of Pollution
Pollution developed from the concept of externalities. Pollutants results from a production or consumption process in which the conversion of inputs into outputs is not efficient in a physical sense, that is some of the inputs become waste products. Residuals from economic process enter into the environment and damage it. The extent of this damage however, depends on the absorptive capacity of the natural environment. Whenever the residuals outweigh the absorptive capacity of the environment then, pollution occurs.
I.2.2 Economic Activity and Environmental Pollution
v Economic Activity
v Emissions into the environment
v Absorption into Harmless Form
v Non Absorbed Emissions
v Accumulation of stock Pollutants
v Damage to the Environment
Economists are concerned with the effects of pollution on welfare and are therefore interested in the damage done to the environment as a whole as such pollution can be defined as the net flows exceeding the absorptive capacity of the environment and which have damaging effects upon human welfare and the ecological system in general.
I.2.3 Efficient Level of Pollution
Identifying efficient level of pollution is very crucial in pollution abatement and control. Existing technology cannot produce goods and services without pollution and hence a tradeoff between production and pollution exists as undesirable ones (pollution) are created. Below summarizes the argument.
Net benefits of pollution = Benefits of outputs associated with pollution minus damages resulting from pollution (BP-DP)
Ex: Benefits output ass with pollution at the end of the climate season was 30.000 frw, but also during this period the normal function or batter costed 40.000 frw
Give up the Net benefits of pollution
Solution 30.000-40.000= -10.000, means that the Benefits output ass with pollution at the end of the climate session was negative when we spend more effort to fight against the season.
I.2.4 Economic Instruments and Pollution Control
The following are some of the policy tools of controlling pollution:
ü Emission standards, this is a legal approach in which the authorities impose emission standards on each source in economics, this approach is referred to as “command-and-control approach.” An emission standard is a legal limit on the amount of pollutant an individual source is allowed to emit failure to abide attracts charges
ü Transferable Emission Permits- Under this system all sources are required to have permits to emit. Each permit specifies how much a firm is allowed to emit and the permits are freely transferable and can be bought or sold and any source exceeding the permit will cause severe monetary sanctions.
ü Product charges where it is not possible to monitor the level of emissions, then the commodity that is most directly responsible for pollution/emissions should be taxed.
I.2.5 Agriculture and the Environment
Agriculture is the science and art of tilling the soil and rearing of animals for the purposes of producing food for man and raw materials for industries, population growth and the need for foreign exchange have stimulated agricultural practices and development and hence this prompted environmental change.
The impact of agricultural practices on the environment is dependent on the type of the natural environment (desert, rainforest, or mountain region).
Some of the negative effects of agriculture on environment are deforestation, soil erosion, salinization, bush burning and overgrazing.
Deforestation: is the removal of vegetation cover and its consequences manifests itself in several forms such as erosion, drought, firewood scarcity, sedimentation and micro-climatic damages, deforestation is caused by indiscriminate felling of trees and large scale extraction of wood for furniture as well as paper and pulp manufacturing. The developing world deforests 11.3 million hectares per year; some consequences of deforestation are species extinction, loss of fixed carbon and reduced capacity of water retention by soils.
Soil Erosion: This is a situation where by top soil are removed or lost from land surface it can be caused by bad agricultural practices such as bush burning, deforestation and overgrazing. Soil is removed and also where the sediments are deposited, soil erosion results to low productivity.
Salinization: This is a form of environmental degradation associated with irrigation which leads to reduction in crop productivity. Salinization connotes an increase in the concentration of minerals due to inadequate drainage, and the groundwater becomes saline and water logged the area, the affected land therefore becomes unsuitable for production, since the present of salt and minerals in the roots of crops hinders their growth. Salinity also increased due to high water loss was evaporation is rapid.
Bush Burning: In developing world especially, fire is used to clear virgin lands for agricultural purposes. This indiscriminate burning caused loss of most Nitrogen, sulphur and carbon, elimination of seedlings to grow, destruction of humus as well as adverse effects on soil micro-fauna and destruction of micro-flora. All of the above have adverse effects on the environment and results to low productivity in agriculture.
Overgrazing: This is over exploitation of the grazing lands usually herdsmen and farmers; it triggers soil erosion, desertification and other process of environmental degradation. Productivity is diminished with a consequence on economy and the welfare of people.
I.2.6 Control of Adverse Agricultural Practices on Environment
Deforestation can be controlled by an effective forest policy, afforestation programmes and tree planting campaigns. Policies should however be continues and sustainable. Soil erosion can be converted by counter ploughing, mixed and intercropping, establishment of vegetation cover, adoption of suitable land use measures and measures of early detection so as to deter its occurrence.
I.2.7 Energy Industrialization and Environment
As society expands and become complex the need for various sources/types of energy to support both domestic and industrial activities also expands, industrialization is associated with the utilization of one form of energy or another, since it converts raw materials into finished goods. Extraction of mineral resources that yield energy is associated with environmental degradation this can be in the forms of health risks, acid leached into streams from mine operations as well as air pollution due to burning of fossils fuels. In most cases the environmental damage is not borne by the owner and hence not compensated as such is not part of the extraction decisions of the energy source.
Stored carbon from biomass and fossils is rapidly being transformed to atmosphere. Increasing concentration of carbon dioxide
Acid (Atomicity, Consistency, Isolation, Durability) rains occur and it corrodes paints and destroys other structures the formation of acid rain can be demonstrated below:
Formula SO2
Example of The two-phase commit protocol (not to be confused with two-phase locking) with an equivalent of ACID of SO= X and H2O= 2W give the carbon from Biomass will be used?
Solution
x.2= 2x=4 x= = 2
As sulphurous acid can be oxidized by various oxidants.
Oxidant
SO2→SO3-SO and can therefore form a weak sulphuric acid as below:
Example: acid for the electron acceptor with the oxidation number of SO is resulted with 5 then H2O with 6, calculate the sulphuric Oxidized by various oxidant agent
Solution
5x2=5x3-5 10=15-5 10=10
10+10+6= 26 is a participation of oxidizing agent on the Sulphuric Oxidized by various
Oxidants
then H2O with 5, calculate the sulphuric Oxidized by various oxidant agent
I.3 Natural resource and Biodiversity
Natural resource is deals with the supply, demand, and allocation of the Earth's natural resources. One main objective of natural resource economics is to better understand the role of natural resources in the economy in order to develop more sustainable methods of managing those resources to ensure their availability to future generations. Resource economists study interactions between economic and natural systems, with the goal of developing a sustainable and efficient economy.
Natural resource economics is a Trans-disciplinary field of academic research within economics that aims to address the connections and interdependence between human economies and natural ecosystems. Its focus is how to operate an economy within the ecological constraints of earth's natural resources. Resource economics brings together and connects different disciplines within the natural and social sciences connected to broad areas of earth science, human economics, and natural ecosystems. Economic models must be adapted to accommodate the special features of natural resource inputs.
I.3.1 Economics of Natural Resource Scarcity
Whether economic growth can be sustained in a finite natural world is one of the earliest and most enduring questions in economic literature. In essence, the issue is whether technological progress and capital accumulation can overcome diminishing marginal returns to finite natural resources. The debate begins with the birth of economics as a separate discipline and continues to this day. Its intellectual roots still play a prominent and significant role. It is the topic of the two previous volumes on Scarcity and Growth published by Resources for the Future.
I.3.2 Natural Resource Economics
Natural resource economics focuses on the supply, demand, and allocation of the Earth's natural resources. Its goal is to gain a better understanding of the role of natural resources in the economy. Learning about the role of natural resources allows for the development of more sustainable methods to manage resources and make sure that they are maintained for future generations.
This diagram illustrates how society and the economy are subsets of the environment. It is not possible for societal and economic systems to exist independently from the environment. For this reason, natural resource economics focuses on understanding the role of natural resources in the economy in order to develop a sufficient and sustainable economy that protects natural resources.
I.3.4 Types of Natural Resources
Natural resources are derived from the environment. Some of the resources are essential to survival, while others merely satisfy societal wants. Every man-made product in an economy is composed of natural resources to some degree. In terms of the source of origin, natural resources can be divided into the following types:
- Biotic: these resources come from living and organic material, such as forests and animals, and include the materials that can be obtained them. Biotic natural resources also include fossil fuels such as coal and petroleum which are formed from organic matter that has decayed.
- Abiotic: these resources come from non-living and non-organic material. Examples of these resources include land, fresh water, air, and heavy metals (gold, iron, copper, silver, etc.).
Natural resources can also be categorized based on their stage of development including:
- Potential resources: these are resources that exist in a region and may be used in the future. For example, if a country has petroleum in sedimentary rocks, it is a potential resource until it is actually drilled out of the rock and put to use.
- Actual resources: these are resources that have been surveyed, their quantity and quality has been determined, and they are currently being used. The development of actual resources is dependent on technology.
- Reserve resources: this is the part of an actual resource that can be developed profitably in the future.
- Stock resources: these are resources that have been surveyed, but cannot be used due a lack of technology. An example of a stock resource is hydrogen.
I.3.4.1 Natural resources are also classified based on their renewability
- Renewable natural resources: these are resources that can be replenished. Examples of renewable resources include sunlight, air, and wind. They are available continuously and their quantity is not noticeably affected by human consumption.
- Non-renewable natural resources: these resources form extremely slow and do not naturally form in the environment. A resource is considered to be non-renewable when their rate of consumption exceeds the rate of recovery. Examples of non-renewable natural resources are minerals and fossil fuels.
I.3.5 Resource Commodities
Three economic measures have been used as indicators of resource scarcity: price, extraction cost, and user cost.
These three indicators are related through a basic first order condition for optimal resource extraction:
P= C
P: denotes the extracted resource price
Exercise: Calculate the denotes of the extracted resource price where the indicators of resource scarcity with extraction cost are Rwf of 2400.000 and the user cost of Rwf of 100.000.
Solution
P= C = Rwf 2.400.000
and denotes the user cost
P= 2.400.000+100.000 P= 2.500.000
I.4 Biodiversity in Economics
There have been a number of economic arguments advanced regarding evaluation of the benefits of biodiversity. Most are anthropocentric but economists have also debated whether biodiversity is inherently valuable, independent of benefits to human.
Diverse ecosystems are typically more productive than non-diverse ones, because any set of species can never fully exploit all potential niches. Since human economic productivity is largely reliant on Earth's ecosystems, adequate bio productivity needs to be maintained.
I.4.1 Food in Economics
Biodiversity provides high variety of food: crops, livestock, forestry, and fish are important food source of human species. However, the number of species has been domesticated and cultivated are small if comparing with the number of species existing. Wild species and varieties can supply genes for improving domesticated species by improving their yield, disease resistance, tolerance and vigor; this can increase the profit of farming.
I.4.2 Biological pest control in Economics
Using control species is often considered as more environmentally friendly method with compared with using pesticides. The control species can be used to protect the crops against pests and weeds. Also, the population of disease vectors (for example, mosquitoes) and the invasive species can be controlled; thus, the economic loss led by the invasive species and vectors can be reduced.
I.4.3 Medication in Economics
A wide variety of plants, animals and fungi are used as medicine. Wild plant species have been used for medicinal purposes since before the beginning of recorded history. Over 60% of world population depends on the plant medicines for their primary health care. For example, quinine comes from the cinchona tree has been used to treat malaria, digitalis from the foxglove plant treats chronic heart trouble, and morphine from the poppy plant gives pain relief.
According to the National Cancer Institute, over 70% of the promising anti-cancer drugs come from plants in the tropical rainforests. It is estimated that of the 250,000 known plant species, only 5,000 have been researched for possible medical applications. Ethno pharmacy is the branch of science that investigates traditional medicines.
I.4.4 Industry in Economics
For example, fibers for clothing, wood for shelter and warmth. Biodiversity may be a source of energy (such as biomass). Other industrial products are oils, lubricants, perfumes, fragrances, dyes, paper, waxes, rubber, latexes, resins, poisons, and cork, which can all be derived from various plant species. Supplies from animal origin include wool, silk, fur, leather, lubricants, and waxes.
Biological material can provide models for many industrial materials and structures. For example, the inspiration for the infrared sensor came from the thermo sensitive pit organ of rattlesnake. The modelling is considered as Bio mimicry.
By biodiversity we take different kind of materials in different and new form like first we use a paper that is made of only from wood but by biodiversity we improve it and use in our daily life.
Where a company is located on or near a site with some wildlife potential, the way in which this land is managed will have a significant impact on biodiversity. Biodiversity can flourish in urban environments given the right conditions such as un-mown grass verges, hedges or bird-feeders or boxes.
I.4.6 Recreational harvesting
Various animals are harvested for display and as pet; many species of plants are harvested for personal and private gardening.
In Britain alone, some 65,000 species are sold for horticulture. It has been suggested that this form of ex-situ conservation may be the most practical form in the future.
I.4.7 Tourism and recreation
Biodiversity is a source of economic wealth for many regions of the world, such as many nature reserves, parks and forests, where wildlife and plants are sources of beauty and joy for many people. Ecotourism, in particular, is a growing outdoor recreational activity. In 1988, it is estimated that 157-236 million people took part in ecotourism. The majority of species have yet to be evaluated for their current or future economic importance.
I.5 Ecological Measurement of Biodiversity
Conservation biologists have designed a variety of objective means to measure biodiversity empirically.
I.5.1Taxonomic Diversity
Biodiversity is usually plotted as taxonomic richness of a geographic area, with some reference to a temporal scale. Whittaker described three common metrics used to measure species-level biodiversity, encompassing attention to species richness or species evenness:
- Species richness: the least sophisticated of the indices available.
- Simpson index
- Shannon: Wiener index
Recently, another new index has been invented called the Mean Species Abundance Index (MSA); this index calculates the trend in population size of a cross section of the species. It does this in line with the CBD 2010 indicator for species abundance.
I.5.3 Ecological and economic importance of Biodiversity
In order to understand the effects that changes in biodiversity will have on ecosystem functioning, it is important to define some terms. Biodiversity is not easily defined, but may be thought of as the number and/or evenness of genes, species, and ecosystems in a region. This definition includes genetic diversity, or the diversity of genes within a species, species diversity, or the diversity of species within a habitat or region, and ecosystem diversity, or the diversity of habitats within a region.
Two things commonly measured in relation to changes in diversity are productivity and stability. Many assume that it can be used as a general indicator of ecosystem function and that total resource use and other indicators of ecosystem function are correlated with productivity.
The importance of stability in community ecology is clear. An unstable ecosystem will be more likely to lose species. In managed areas like cropland, and in areas where animals are grown or caught, increasing productivity increases the economic success of the area and implies that the area has become more efficient, leading to possible long term resource sustainability.
It is more difficult to find the importance of productivity in natural ecosystems.
Beyond the value biodiversity has in regulating and stabilizing ecosystem processes, there are direct economic consequences of losing diversity in certain ecosystems and in the world as a whole. Losing species means losing potential foods, medicines, industrial products, and tourism, all of which have a direct economic effect on people’s lives.
I.5.5 Effects on community productivity
Complementarity Plant species coexistence is thought to be the result of niche partitioning, or differences in resource requirements among species. By complementarity, a more diverse plant community should be able to use resources more completely, and thus be more productive.
Facilitation: is a mechanism whereby certain species help or allow other species to grow by modifying the environment in a way that is favorable to a co-occurring species. Plants can interact through an intermediary like nitrogen, water, temperature, space, or interactions with weeds or herbivores among others.
The Sampling Effect The sampling effect of diversity can be thought of as having a greater chance of including a species of greatest inherent productivity in a plot that is more diverse. The sampling effect can be separated into the greater likelihood of selecting a species that is 1) adapted well to particular site conditions, or 2) of a greater inherent productivity. Additionally, one can add to the sampling effect a greater likelihood of including 3) a pair of species that highly complement each other or 4) a certain species with a large facilitative effect on other members of the community.
I.5.6 Theory and preliminary effects from examining food webs
One major problem with both the diversity-productivity and diversity-stability debates discussed up to this point is that both focus on interactions at just a single trophic level. That is, they are concerned with only one level of the food web, namely plants. Other research, unconcerned with the effects of diversity, has demonstrated strong top-down forcing of ecosystems.
Theory into the future study of the effects of biodiversity. In addition this complexity will need to be addressed when designing biodiversity management plans.
I.5.7 Policy prescriptions for Promoting Environmental Economics
Structural for environment and economic growth: Establishment of structures and institutions to promote environment economic growth
Industrial Sustainability: Creation of circular industrial eco-systems and Designing
Products for needs
Agricultural Sustainability: Promotion of: Polyculture, Agro-Ecology and Organic
Farming
Urban Sustainability: Planning, guiding and regulating the built environment, based on
‘carrying capacity’, Conservation of lakes, trees, parks/gardens and Treatment of
Wastewaters prior to disposal into rivers, lakes or the sea.
An effective water management plan, with the following components:
- Rainwater Harvesting;
- Encouraging conservative use;
- Paying realistic prices;
- Better maintenance and leakage prevention.
Forest Sustainability: Ensuring retention of minimum forest cover, Co-ordination of
authorities responsible for forest management functions and Making tribals and forest
Dwellers stakeholders in forest management and preservation.
Energy Sustainability: Shift to alternative, renewable sources of energy, Encouraging change in lifestyles, Introducing energy efficiency standards and Elimination of subsidies; levy of energy taxes.
CHAP II THEORY OF EXTERNATIES AND METHODS OF ABATEMENT
In economics, an externality is the cost or benefit that affects negatively or positively a party whom did not choose to incur that cost or benefit.
For example, manufacturing activities that cause air pollution impose health and clean-up costs on the whole society, whereas the neighbors of an individual who chooses to fire-proof his home may benefit from a reduced risk of a fire spreading to their own houses. If external costs exist, such as pollution, the producer may choose to produce more of the product than would be produced if the producer were required to pay all associated environmental costs.
If there are external benefits, such as in public safety, less of the good may be produced than would be the case if the producer were to receive payment for the external benefits to others.
II.1 External costs and benefits
Voluntary exchange is considered mutually beneficial to both parties involved, because buyers or sellers would not trade if either thought it detrimental to themselves. However, a transaction can cause additional effects on third parties. Those who suffer from external costs do so involuntarily, whereas those who enjoy external benefits do so at no cost.
II.1.2.1 Examples of positive consumption externalities include
- An individual who maintains an attractive house may confer benefits to neighbors in the form of increased market values for their properties.
- An individual receiving a vaccination for a communicable disease not only decreases the likelihood of the individual's own infection, but also decreases the likelihood of others becoming infected through contact with the individual.
- Driving an Electric vehicle. This reduces Greenhouse gas emissions and improves local air quality leading to better public health.
- Increased education of individuals, as this can lead to broader society benefits in the form of greater economic productivity, a lower unemployment rate, greater household mobility and higher rates of political participation.
- An individual buying a product that is interconnected in a network (e.g., a video cellphone). This will increase the usefulness of such phones to other people who have a video cellphone. When each new user of a product increases the value of the same product owned by others, the phenomenon is called a network externality or a network effect. Network externalities often have "tipping points" where, suddenly, the product reaches general acceptance and near-universal usage.
- In an area that does not have a public fire department; homeowners who purchase private fire protection services provide a positive externality to neighboring properties, which are less at risk of the protected neighbor's fire spreading to their (unprotected) house.
The existence or management of externalities may give rise to political or legal conflicts.
Collective solutions or public policies are sometimes implemented to regulate activities with positive or negative externalities.
II.1.2.2 Externalities: Problems and Solutions
Market failure: A problem that violates one of the assumptions of the 1st welfare theorem and causes the market economy to deliver an outcome that does not maximize efficiency Externality: Externalities arise whenever the actions of one economic agent make another economic agent worse or better 0, yet the first agent neither bears the costs nor receives the benefits of doing so: Example: a steel plant that pollutes a river used for recreation Externalities are one example of market failure
II.3.1 Externality theory Economics of Negative Production Externalities
Negative production externality: When a firm's production reduces the well-being of others who are not compensated by the firm.
Private marginal cost (PMC): The direct cost to producers of producing an additional unit of a good
Marginal Damage (MD): Any additional costs associated with the production of the good that are imposed on others but that producers do not pay Social marginal cost (SMC = PMC + MD): The private marginal cost to producers plus marginal damage
Example:
Steel plant pollutes for rivers planted 5% of the total side need to have plantation, but plant does not face any pollution regulation (and hence ignores pollution when deciding how much to produce) the decision taken said that should be a permanent staff who will take care of this plantation and will 2% of remuneration which is from the Steel plant pollutes for rivers total budget. Calculate the SMC?
Solution
PMC= 5%= 0,5
MD= 2%= 0,2
SMC= 0,5+0,2= 0,7 7%
II.4 Types of Externalities
More examples needed in negative part, for car use one of the largest sections in economic externalities. i.e traffic congestion, pavement damage, traffic accidents... the list goes on.
I agree totally, there should be a new section 'Examples'. Climate change is the most obvious one that comes to mind but there are many others. The links to other topics provided from such a section could be quite useful for readers.
We have to be careful about examples. Examples should be limited in number, clearly illustrate the concept, and be well-referenced otherwise we risk creating an example farm.
II.5 Non-market solutions
What about solutions to externalities that do not involve markets, such as participatory economics? Do they fall into one of the four categories that are listed in the article, or do they need to be listed separately.
II.6 Steel Mill Assumptions
The steel mill argument assumes that air pollution is a requirement for steel production. I have been, with our current system, but in a regime with personal property right assumptions that forbid such intrusions, containment technologies may have been developed in tandem with the steel technology.
II.7 Pecuniary externalities
I removed "Consumption by one consumer causes prices to rise and therefore makes other consumers worse off, perhaps by reducing their consumption. These effects are sometimes called "pecuniary externalities".
Many economists do not accept the concept of pecuniary externalities, attributing such problems to anti-competitive behavior, monopoly power, or other definitions of market failures." The second sentence is entirely correct, pecuniary externalities aren't actual externalities (in fact, they are generally not any sort of market failure whatsoever).
II.7.1 Incomplete definition, surely fair competition isn't an externality
an impact on a party that is not directly involved in the transaction.
- what kind of impact?
- what does "directly involved" mean?
- whats defined as a "transaction"?
Besides the point of the definition being incredibly undefinitive, can fair competition fit into the definition of an externality? Clearly competition has an impact on its competitors, who aren't directly involved in its transactions.
I'm afraid the definition is still problematic. We currently define an externality as "a cost or benefit not transmitted through prices that is incurred by a party who did not agree to the action causing the cost or benefit." Here are some tests:
- I detonate a bomb inside a building without having warned its occupants, who die. The occupants clearly didn't agree with my action. Can their deaths be called a "negative externality" of my attack? If one argues that going to prison would be the price, how about doing something mischievous, but not (yet) illegal?
- I suffer from HIV and find a cure, but too late. When I die, my executor, who also suffers from HIV, discovers my research notes and results. He willfully opens the book, reads it and succeeds to cure himself. His survival was his intention, but isn't it still a positive externality of my research (knowledge spillover)?
II.7.2. Methods of Abatement of Externalities
While assessing and mitigating negative impacts of development projects is important project level action are not sufficient to reduce all environmental problems. The underlying causes of many environmental problems are not directly related to the specific projects, but rather stem from policy and market failures. In these cases government action is required to correct these failures through intervention, which may include changes in property rights and other institutions governing resource use; policy instruments such as tax/subsides, market-based incentives and regulatory measures; and direct public investments. These are two alternative approaches to abatement of externalities, namely.
ü Pigouvian Tax-subsidy approach;
ü Coasian Property Rights approach.
II.8.2.1 The Pigouvian Tax-subsidies approach/ Polluter pays
The traditional economic approach to modifying externalities can be ascribed to pigou (1962) who had argued that taxes and subsidies could be used to encourage economic agents to internalize externalities. In the case of negative externalities, pigou’ solution is that the producer must compensate parties who are affected by negative externalities or be taxed to the extent that the marginal private cost, including the tax, is equal to marginal social cost including the negative externality.
The tax should be fixed at exactly the level of marginal external cost. This either induces the one who imposes the externality to
v Eliminate or reduce the externality to acceptable limits
v Compensate the parties adversely affected through the tax proceeds
Conversely, a payment, such as a subsidy could be made to compensate producers who cause beneficial externalities. The subsidy should be precisely equal to the marginal external benefit so as reduce the cost of production sufficiently to increase the output to a socially efficient level. The tax-subsidy solution is commonly used in both developing and developed countries of the world. The tax solution of a negative externality.
II.8.2 Coasian property Rights Approach
In law and economics, the Coase theorem (pronounced /ˈkoʊs/) describes the economic efficiency of an economic allocation or outcome in the presence of externalities. The theorem states that if trade in an externality is possible and there are sufficiently low transactions costs, bargaining will lead to an efficient outcome regardless of the initial allocation of property.
In practice, obstacles to bargaining or poorly defined property rights can prevent Coasian bargaining. This "theorem" is commonly attributed to Nobel Prize laureate Ronald Coase during his tenure at the University of Virginia. However, Coase himself stated that the theorem was based on perhaps four pages of his 1960 paper "The Problem of Social Cost", and that the "Coase theorem" is not about his work at all.
II.8.2.1 Efficiency and invariance
Because Ronald Coase himself did not originally intend to set forth any one particular theorem, it has largely been the effort of others who have developed the loose formulation of the Coase theorem. What Coase initially provided was fuel in the form of “counterintuitive insight” that externalities necessarily involved more than a single party engaged in conflicting activities and must be treated as a reciprocal problem.
His work explored the relationship between the parties and their conflicting activities and the role of assigned rights/liabilities. While the exact definition of the Coase theorem remains unsettled, there are two issues or claims within the theorem: the results will be efficient and the results in terms of resource allocation will be the same regardless of initial assignments of rights/liabilities.
II.8.2.1.1 Efficiency version: aside from transaction costs, the prevailing outcome
will be efficient
The zero transaction cost condition is taken to mean that there are no impediments to bargaining. Since any inefficient allocation leaves unexploited contractual opportunities, the allocation cannot be a contractual equilibrium.
II.8.2.1.2 Invariance version: aside from transaction costs, the same efficient
outcome will prevail
This version fits the legal cases cited by Coase. If it is more efficient to prevent cattle trampling a farmer's fields by fencing in the farm, rather than fencing in the cattle, the outcome of bargaining will be the fence around the farmer's fields, regardless of whether victim rights or unrestricted grazing-rights prevail.
Subsequent authors have shown that this version of the theorem is not generally true, however. Changing liability placement changes wealth distribution, which in turn affects demand and prices.
Saving
According to Keynesian economics, the amount left over when the cost of a person's consumer expenditure is subtracted from the amount of disposable income that he or she earns in a given period of time.
Micro saving for Individual or small group
A1-B1= C1
C1/A1= D1
For example, if you ultimately paid 220 RwF for the potatoes after all discounts, the new price is 150 RwF, Calculate the saving
220-150=70 this is the Interest Rate
Saving Rate=
In this example, the price difference is the original price of $50 minus $40, or $10.
Bank Interest on micro and macro saving
S=P(r)(t)
S= simple interest, P= Principal, R=rate and T= time
Compound interest formula: A=P
A= An amount of money accumulated including interest, P= Principal, R= rate of interest
N=number of times the interest is compounded and T= number of years
Ex: P= 1,500, R=0.06, N=4 and T=2
Calculate the A?
1,500 (1+
A= 1,689.75
CHAP III THE MECHANISM OF ECONOMICS THEORIES AND THE PROBLEM OF RESOURCE ALLOCATION AS SOLUTION OF ENVIRONMENT
III.0 Introduction
Economics is a social science studying the production, distribution and consumption of goods and services. It is a complex social science that spans from mathematics to psychology. At its most basic, however, economics considers how a society provides for its needs. Its most basic need is survival; which requires food, clothing and shelter.
Once those are covered, it can then look at more sophisticated commodities such as services, personal transport, entertainment, the list goes on. Today, this social science known as "Economics" tends to refer only to the type of economic thought which political economists refer to as Neoclassical Economics. It developed in the 18th century based on the idea that Economics can be analyzed mathematically and scientifically.
III.1 Classical Economics
Modern economic thought is generally considered to have originated in the late eighteenth century with the work of David Hume and Adam Smith, the founders of classical economics.
David Hume: The Scottish philosopher David Hume was an early exponent of what was later known as monetary economics, and was an opponent of "mercantilism". Adam Smith: A major advance in the development of economics occurred with the publication in 1776 of Adam Smith's An Inquiry into the Nature and Causes of The Wealth of Nations.
Smith wrote a comprehensive treatment of the subject, using deductive logic in a manner similar to its use in the physical sciences. His main purpose was to recommend changes of economic policy in the interests of economic growth.
Jean-Baptiste Say: Jean-Baptiste Say was an influential advocate of Adam Smith's teaching in French government circles, but his best-known contribution was what came to be known as "Say's Law of Markets." Thomas Malthus: In his influential Essay on the Principle of Population, Thomas Malthus postulated that the population would grow at a geometric rate (2, 4, 8, 16...) while food production could only increase arithmetically (1, 2, 3, 4 ....) and concluded that the food supply would eventually be insufficient to support the population. David Ricardo: With minor reservations, David Ricardo accepted and extended Adam Smith’s economics. In his major work, The Principles of Political Economy and Taxation, he accepted the concept of a value-determined “natural price”, although he considered value to be determined by labour value added, rather than cost.
III.1.1 Comparative Advantage
Karl Marx: Karl Marx adapted Ricardo's concept of labour value and put it to an entirely different use. In his analysis, as in Ricardo's, labour consumption determines value. This, Marx termed exchange value.
III.1.2 The neoclassical approach
Marginal analysis: The concept of utility, was given more prominence, and it was demonstrated logically (and mathematically) that a rational consumer would continue to buy additional units of a product until its marginal utility (the increase in utility obtainable from one additional unit of the product) became level with to its price; and that a rational supplier would continue to offer additional units of a product until its marginal cost became level with the marginal revenue that he would get from selling it. Welfare and Efficiency: The most politically influential of the contributions of the neoclassical economists was probably their development of the concept of welfare. In accordance with the precepts of representative government, they assumed the criterion for the success of an economic system to be the welfare of the individual, and they introduced the concept of economic efficiency as a measure of that success. Vilfredo Pareto took the lead in defining efficiency as a state in which no-one could be made better off without making someone worse off. Competition: The theorems of welfare economics establish a presumption that allocative efficiency - that is to say that resources will be optimally allocated as between the production of alternative products will be achieved under the hypothetical conditions of perfect competition. Economic growth: There has been succession of attempts to create models of economic growth that identify the contributions of such factors as investment, productivity, innovation and institutional environment; and that explain the differences in growth experienced by different regions of the world. In the simple model proposed by Malthus in 1850, growth could not exceed population growth, but it was not long before it became evident that it was doing so.
The Harrod-Domar models, and its successors, assume that there would be sufficient economic growth to enable some to go into growth-enhancing investments.
In a later development, the 1956 Solow model introduced the influence of the substitution of capital for labour that results from investment in improved capital equipment.
III.1.3 Keynesian macroeconomics
The contribution of John Maynard Keynes: The most important contribution to economic thought by John Maynard Keynes was his examination of the factors determining the levels of national income and employment, and the causes of economic fluctuations. His major (and hard to read) work, the General Theory of Employment, Interest and Money, contains a sustained attack on much of the thinking of classical economics - mainly on the grounds that their postulates were unrealistic. Neo-Keynesianism: Its main feature is the IS/LM diagram with its intersecting curves, one of which (Investment/Savings) relates the demand for savings to the interest rate, and the other (Liquidity/Money Supply) relates the demand for money to the interest rate - and in which the point of intersection of the two curves represents an equilibrium level of demand.
III.2 Economic theory and the problem of resource allocation
III.2.1 Rational of Economic theory
Making Choice is an everyday occurrence, individuals, households, firms producing goods and services, governments and even the international community makes choices .choices have to be made for the simple reason that there is scarcity.
the best known scarcity is that of money to buy to buy all things we desire as individuals, households, or even governments .time is scarce, for instance land in the high potential areas of Rwanda is only a certain area .similarly the forest area in Rwanda is scarce in the sense we would want to have more forests, but forestland can also cultivated because food produced is scarce. Scarcity implies that a choice has to be made.
III.2.2 Why Economics of Natural Resources
As the twenty-first century begins it is clear that the welfare of humanity is closely linked to the quantity and quality of the natural resources were a free good but today they are scarce good. The relationship is starkly demonstrated by countries in sub-Saharan Africa and elsewhere in developing countries, where the majority of the people derive their livelihood directly from forests ecosystems.
However , poverty and degradation of natural resources in these countries is on the increase .it is also becoming increasingly clear that although there are natural resources issues that are regional or even country specific ,others are of global concern and impact ,as clearly demonstrated by the global concern and impact ,as clearly as demonstrated by global warming, depletion of the ozone layer ,and reduction of the forest cover resulting in loss of their irreplaceable benefits and functions such as the Gishwati forest.
It is also evident that governments in specific are increasingly being confronted with natural resource linked conflicts .this is because without consideration of peoples ‘interests ,sustainable natural resources conservation is not possible.
It is now acknowledged that natural resources are not merely biophysical entities but are also economic commodities essentially dynamic and embedded (NRM) systems can only be developed if natural, economic and governance components are appreciated and integrated.
This means that appropriated NRM systems derived by combining inputs from resource characteristics, policies, institutions, technology, skills and economic signals.
The focus on natural resource and environmental issues is current and topical because they are focused in the global millennium goals as the 7th goal.
III.2.3 Natural Resources as Scarce Resources
Natural resources, often termed as “the free gifts of nature “are neither free nor finite. Therefore, welfare of a society depends on how it allocates its scarce natural resources among the competing needs by making choices .economics as study of choice can contribute to natural resources among the competing needs by making choices .economics as study of choice can contribute to natural resource and environment management by:
· Identifying circumstances which generate natural resource problems.
· Determining the cause of these problems.
· Identifying possible solution and comparing their cost and benefits.
In making the choices, tradeoffs have to made, that is giving up one thing in order to get something else. Economics have three main areas where trade-offs are made: what is produced with the available (natural) resources such as land, how much is produced (food crops or forest products) and for whom goods and services are produced (who will enjoy the food crops and the forest product s produced from the land resource)
III.2.4 Economic Criteria for decision making in solving Nature Resources Problems
The amount of resource available to a country or a single producer defines the limit of what can be produced given the available technology .assume that the resource in question is the amount of land and the alternative use is to cultivate food crop or retain forest vegetation .the different combinations of the two alternatives possible can be presented in graphical model
The combination of food crop and forest falling on the production possibility frontier (ppf) is the maximum possible given the resources and technology .production on this curve constitutes technical efficiency that is maximum physical output given the available resources and technology.
combinations above and to the left of the line are unattainable from the land area available.to produce more food crop we have to give up some forestland (opportunity cost).all economic questions arise because we want more than we can get .we want to keep our forests but we more than we can get .we want to keep our forests but we also want land for growing crops.
III.2.5 Value in Economics
A generally accepted notion of Value is the worth of goods and services as determined by markets. Thus an important part of Economics is the study of policies and activities for the generation and transfer of Value within markets in the form of goods and services. Often a measure for the worth of goods and services is units of currency such as the US Dollar, peso etc...
But, unlike the units of measurements in Physics such as Seconds for Time, there exists no absolute basis for standardizing the units for Value. Usually the value of a currency is related to the value of Gold, which in turn is valued by amount or number of goods and services that it can be exchanged for. Because the rate of production of gold in the world is slower than the rate of creation of goods and services, the relation between gold and currencies is not as strict as it used to be.
Thus, one of the most complicated and most often misunderstood parts of economy is the concept of value. One of the big problems is the large number of different types of values that seem to exist, such as exchange-value, surplus-value, and use-value
This statement needs some explanation. Take as an example two companies that are thinking of buying a new copying machine. One company does not think they will use a copying machine that much, but the other knows it will copy a lot of papers. This second company will be prepared to pay more for a copying machine than the first one. They find different utility in the object used by Economist as an actor of Economy.
III.2.6. Scarcity and Choice
Scarcity means that people want more than is available. Scarcity limits us both as individuals and as a society. As individuals, limited income (and time and ability) keep us from doing and having all that we might like. As a society, limited resources (such as manpower, machinery, and natural resources) fix a maximum on the amount of goods and services that can be produced.
Since you make a choice of doing something, or fulfilling a certain want, it turns out that at any one time, there is a certain want that you have to ignore, or forego, in order to fulfill another want.
When you wake up to go to work or school in the morning, for example, you probably would have loved to sleep just a little more, but then you have to wake to wake up and leave for work because you must earn a living. In this scenario, it can be rightly assumed that you have foregone sleep in order to go to work.
III.2.7. Rational behavior
A decision-making process that is based on making choices that result in the most optimal level of benefit or utility for the individual. Most conventional economic theories are created and used under the assumption that all individuals taking part in an action/activity are behaving rationally.
Rational choice theory, also known as choice theory or rational action theory, is a framework for understanding and often formally modeling social and economic behavior.
The basic premise of rational choice theory is that aggregate social behavior results from the behavior of individual actors, each of whom is making their individual decisions. The theory therefore focuses on the determinants of the individual choices (methodological individualism).
III.2.8. Welfare economics
Welfare economics is a branch of economics that uses microeconomic techniques to evaluate well-being from allocation of productive factors as to desirability and economic efficiency within an economy, often relative to competitive general equilibrium.[6] It analyses social welfare, however measured, in terms of economic activities of the individuals that compose the theoretical society considered.
III.2.9. Economics of information
Information economics or the economics of information is a branch of microeconomic theory that studies how information and information systems affect an economy and economic decisions. Information has special characteristics. It is easy to create but hard to trust. It is easy to spread but hard to control. It influences many decisions.
III.3. Inflation
Inflation is caused when goods and services are in high demand, creating a drop in availability. Consumers are willing to pay more for the items they want, causing manufacturers and service providers to charge more. Supplies can decrease for many reasons: A natural disaster can wipe out a food crop or a housing boom can exhaust building supplies, among other situations.
In order to calculate the inflation rate for any product or service, you will need the price of the goods or services for the two periods of time in question. You then use the following formula to calculate the inflation rate:
Inflation Rate = ((T2 - T1)/T1) x 100
Where,
T1 = Price for the first time period or the starting number
T2 = Price for second time period or the ending number
Here's an example. Let's say that the price the average 32-inch flat screen television was 400.000 RwF last year currently the said Flat is costed 410. 000 RwF, calculate the annual rate in the Rwandan Currency Francs of Inflation for Rate for 32-inch flat screen televisions?
Solution/ answer
Inflation Rate = ((T2 - T1)/T1) x 100
Flat Screen TV on previous price was 400.000 RwF
Currently, the said Flat Screen TV is costed 410.000 RwF
Inflation rates
IR
III.3.2. Deflation
In economics, deflation is a decrease in the general price level of goods and services. Deflation occurs when the inflation rate falls below 0% (a negative inflation rate). This should not be confused with disinflation, a slow-down in the inflation rate (i.e., when inflation declines to lower levels).
Inflation reduces the real value of money over time; conversely, deflation increases the real value of money the currency of a national or regional economy. This allows one to buy more goods with the same amount of money over time.
Formula
Example: The Last Previous year price of Potato’s items was 100 RwF per Kg, Current the product price is increasing on same items B = 125
Calculate the Deflation of the Items
Deflation of Items
III.3.3. Glossary at a Glance
Deflator: A numeric pricing measure used to change nominal values into real values.
Homogeneous: Of the same or a similar kind or nature.
Nominal: The value of an economic variable in terms of the price level at the time of its measurement; or, unadjusted for price movements.
Real: The value of an economic variable adjusted for price movements.
III.4. Methods for maximizing or minimizing an objective function in Economics
Ø Consumers maximize utility by purchasing an optimal combination of goods
Ø Firms maximize profit by producing and selling an optimal quantity of goods
Ø Firms minimize their cost of production by using an optimal combination of inputs
III.4.1 Setting a price
An object's Value, worth and utility is not something fixed, but instead a subjective property of the object. This subjectivity may be a bit surprising, it is easy to imagine that something must have an objective worth being bought and sold. However this is not the case, in fact, it's the opposite.
Now, we know that the price ends up somewhere between the seller's valuation of the item and the buyer's valuation of the item. The question of what the price of an item will be therefore depends on these valuations. What, then will these valuations depend on?
If an object had an intrinsic, objective worth, and both seller and buyer were aware of it, the buyer's and seller's valuation of the object would never overlap, and no deal would ever be cut, because the seller would never be willing to sell it at a price less than the objective worth. The subjectiveness of value is necessary for things to be sold and bought at all.
III.4.2 Free and Regulated markets
The description above is of a free market, where anyone can buy and sell, and where price is set by buyer and seller alone. This is not always the case. Instead many markets are regulated, to limit either the people involved or the prices or both. For example, not everyone is allowed to sell medicine, claim to be a doctor or drive a taxi. Of course, it can be said today that all markets are regulated in some way. You are, for example, not allowed to use violence, break agreements or steal. But the state setting up the rules for making the market function smoothly is not usually seen as making the market non-free.
III.4.3 Common Market in Economics
Common Market means the Partner States’ markets integrated into a single market in
which there is:
1. Free movement of persons;
2. Free movement of labour;
3. Free movement of services;
4. Free movement of capital;
5. Right of establishment; and
6. Right of residence.
III.4.5 Complexities of barter in Economics
When exchanging goods by barter, you need to find something you want more than something you have, while the person you barter with has to value the thing you have more than the thing you want. There are four individual valuations that must match.
Now, the big problem here is that when you are to value the lamp, it is no longer what you think of the lamp that is important. It's what the shoemaker thinks of the lamp. You need to guess its average value, so that you can be reasonably sure that the shoemaker will want it.
III.4.6 The essence of money in Economics
And that, in essence, is what money is, a common value system. It is a way for you to simply quantify the value into a number and communicate this to others. You can say that your chair is worth five units, the lamp maker can value his lamp to three units and the shoemaker thinks his shoes are worth four units. We can now instantly and easily compare values. Trading suddenly got much easier.
But that's not all. With a common value system that is based on exchangeable entities, we can exchange these entities as payment. You can now go down with your chair to the market, sell the chair to the highest bidder, and then go with your money to the shoemaker, and buy a couple of shoes. No longer do you need to evaluate the average market value of the lamp, or cut three-way deals.
III.5 Choice in Economics
Involves mentally making a decision: judging the merits of multiple options and selecting one or more of them. One can make a choice between imagined options ("what would I do if ...?") or between real options followed by the corresponding action. For example, a traveler might choose a route for a journey based on the preference of arriving at a given destination as soon as possible.
The preferred (and therefore chosen) route can then follow from information such as the length of each of the possible routes, traffic conditions, etc. If the arrival at a choice includes more complex motivators, cognition, instinct and feeling can become more intertwined.
There are four main types of decisions, although they can be expressed in different ways. Brian Tracy breaks them down into:
- Command decisions, which can only be made by you, as the "Commander in Chief"; or owner of a company.
- Delegated decisions, which may be made by anyone, such as the color of the bike shed, and should be delegated, as the decision must be made but the choice is inconsequential.
- Avoided decisions, where the outcome could be so severe that the choice should not be made, as the consequences cannot be recovered from if the wrong choice is made. This will most likely result in negative actions, such as death.
- "No-brainer" decisions, where the choice is so obvious that only one choice can reasonably be made.
- A fifth type, however, or fourth if three and four are combined as one type, is the collaborative decision, which should be made in consultation with, and by agreement of others. Collaborative Decision Making revolutionized air-traffic safety by not deferring to the captain when a lesser crew member becomes aware of a problem.
Scarcity is the fundamental economic problem of having seemingly unlimited human wants in a world of limited resources. A common misconception on scarcity is that an item has to be important for it to be scarce.
This is not true, for something to be scarce, it has to be hard to obtain, hard to create, or both. Simply put, the production cost of something determines if it is scarce or not. In an influential 2014 essay, Lionel Robbins defined economics as "the science which studies human behavior as a relationship between ends and scarce means which have alternative uses."
In biology, scarcity can refer to the uncommonness or rarity of certain species. Such species are often protected by local, national or international law in order to prevent extinction.
III.5.1 Opportunity cost of a choice
In Economics, the opportunity cost of a choice is the value of the best alternative forgone, in a situation in which a choice needs to be made between several mutually exclusive alternatives given limited resources. Assuming the best choice is made, it is the "cost" incurred by not enjoying the benefit that would be had by taking the second best choice available.
The New Oxford American Dictionary defines it as "the loss of potential gain from other alternatives when one alternative is chosen". Opportunity cost is a key concept in economics, and has been described as expressing "the basic relationship between scarcity and choice". Thus, opportunity costs are not restricted to monetary or financial costs: the real cost of output forgone, lost time, pleasure or any other benefit that provides utility should also be considered opportunity costs.
Explicit costs
Explicit costs are opportunity costs that involve direct monetary payment by producers. The explicit opportunity cost of the factors of production not already owned by a producer is the price that the producer has to pay for them. For instance, if a firm spends $100 on electrical power consumed, its explicit opportunity cost is $100. This cash expenditure represents a lost opportunity to purchase something else with the $100.
Implicit costs
Implicit costs (also called implied, imputed or notional costs) are the opportunity costs not reflected in cash outflow but implied by the failure of the firm to allocate its existing (owned) resources, or factors of production to the best alternative use.
For example: a manufacturer has previously purchased 1000 tons of steel and the machinery to produce a widget. The implicit part of the opportunity cost of producing the widget is the revenue lost by not selling the steel and not renting out the machinery instead of using them for production.
III.5.2. Opportunity cost
Opportunity cost of an activity (or goods) is equal to the best next alternative uses/foregone. Although opportunity cost can be hard to quantify, the effect of opportunity cost is universal and very real on the individual level. In fact, this principle applies to all decisions, not just economic ones.
Opportunity cost is one way to measure the cost of something. Rather than merely identifying and adding the costs of a project, one may also identify the next best alternative
way to spend the same amount of money.
Quantity of Potatoes
|
Quantity of Beans
|
Total Qties consumed
| |
A
|
50 (50-47)
|
0
|
-
|
B
|
47 (47-42)
|
1
|
3
|
C
|
42 (42-35)
|
2
|
5
|
D
|
35 (35-20)
|
3
|
7
|
E
|
20 (20-0)
|
4
|
15
|
F
|
0
|
5
|
20
|
The Opportunity cost of Q B to the Q E= 47-20= 27
III.5.3. Utility
A basic formulation of consumer demand theory involves an analysis of the total utility and marginal utility derived from the consumption of a good. The focal point of utility analysis is usually a table of the total and marginal utility generated by consuming different quantities of a good, such as the one displayed in the exhibit to the right.
Utility Analysis
Rides
|
Total Utility
|
Marginal Utility
|
0
|
0
| |
1
|
11
|
11
|
2
|
20
|
9
|
3
|
27
|
7
|
4
|
32
|
5
|
5
|
35
|
3
|
6
|
36
|
1
|
7
|
35
|
-1
|
8
|
32
|
-3
|
III.5.4. Costs of production
The cost-of-production theory of value states that the price of an object or condition is determined by the sum of the cost of the resources that went into making it. The cost can comprise any of the factors of production: labour, capital, land. Technology can be viewed either as a form of fixed capital (ex: plant) or circulating capital (ex: intermediate goods).
III.5.4.1. Fixed and variable costs
Fixed costs are those that do not vary with output and typically include rents, insurance, depreciation, set-up costs, and normal profit. They are also called overheads.
Variable costs are costs that do vary with output, and they are also called direct costs. Examples of typical variable costs include fuel, raw materials, and some labour costs.
III.5.4.2. An example
Consider the following hypothetical example of a boat building firm. The total fixed costs, TFC, include premises; machinery and equipment needed to construct boats, and are £100,000, irrespective of how many boats are produced. Total variable costs (TVC) will increase as output increases.
OUTPUT
|
TOTOL FIXED COST
|
TOTAL VARIABLE COST
|
TOTAL COST
|
1
|
100
|
50
| |
2
|
100
|
80
| |
3
|
100
|
100
| |
4
|
100
|
110
| |
5
|
100
|
150
| |
6
|
100
|
220
| |
7
|
100
|
350
|
TC= , VC=
Plotting this gives us Total Cost, Total Variable Cost, and Total Fixed Cost.
III.5.4.3. Total fixed costs
Given that total fixed costs (TFC) are constant as output increases, the curve is a horizontal line on the cost graph.
III.5.4.4. Total variable costs
The total variable cost (TVC) curve slopes up at an accelerating rate, reflecting the law of diminishing marginal returns.
III.5.4.5.Total costs
The total cost (TC) curve is found by adding total fixed and total variable costs. Its position reflects the amount of fixed costs, and its gradient reflects variable costs.
III.5.4.6. Average fixed costs
Average fixed costs are found by dividing total fixed costs by output. As fixed cost is divided by an increasing output, average fixed costs will continue to fall.
Formula is AFC=
OUTPUT
|
TOTAL FIXED COST
|
AVERAGE FIXED COST
|
1
|
100
| |
2
|
100
| |
3
|
100
| |
4
|
100
| |
5
|
100
| |
6
|
100
| |
7
|
100
| |
8
|
100
|
The average fixed cost (AFC) curve will slope down continuously, from left to right.
III.6. Opportunity cost of capital
In economics and accounting, the cost of capital is the cost of a company's funds (both debt and equity), or, from an investor's point of view "the required rate of return on a portfolio company's existing securities". It is used to evaluate new projects of a company. It is the minimum return that investors expect for providing capital to the company, thus setting a benchmark that a new project has to meet.
III.6.1. Sustainability in Economics
In ecology, sustainability is how biological systems remain diverse and productive. Long-lived and healthy wetlands and forests are examples of sustainable biological systems. In more general terms, sustainability is the endurance of systems and processes.
The organizing principle for sustainability is sustainable development, which includes the four interconnected domains: ecology, economics, politics and culture. Sustainability science is the study of sustainable development and environmental science.
Healthy ecosystems and environments are necessary to the survival of humans and other organisms. Ways of reducing negative human impact are environmentally-friendly chemical engineering, environmental resources management and environmental protection. Information is gained from green chemistry, earth science, environmental science and conservation biology. Ecological economics studies the fields of academic research that aim to address human economies and natural ecosystems.
The transfer of water from agricultural to urban and suburban use raises concerns about agricultural sustainability, rural socioeconomic decline, food security, an increased carbon footprint from imported food, and decreased foreign trade balance.
The depletion of fresh water, as applied to more specific and populated areas, increases fresh water scarcity among the population and also makes populations susceptible to economic, social, and political conflict in a number of ways; rising sea levels forces migration from coastal areas to other areas farther inland, pushing populations closer together breaching borders and other geographical patterns, and agricultural surpluses and deficits from the availability of water induce trade problems and economies of certain areas.
III.6 Water management in Economics
The issue of the depletion of fresh water can be met by increased efforts in water management. While water management systems are often flexible, adaptation to new hydrologic conditions may be very costly. Preventative approaches are necessary to avoid high costs of inefficiency and the need for rehabilitation of water supplies and innovations to decrease overall demand may be important in planning water sustainability.
Water supply systems, as they exist now, were based on the assumptions of the current climate, and built to accommodate existing river flows and flood frequencies. Reservoirs are operated based on past hydrologic records, and irrigation systems on historical temperature, water availability, and crop water requirements; these may not be a reliable guide to the future.
Another approach is water privatization; despite its economic and cultural effects, service quality and overall quality of the water can be more easily controlled and distributed. Rationality and sustainability is appropriate, and requires limits to overexploitation and pollution, and efforts in conservation.
III. 7 Problem of Resource Allocation
Resource allocation is the assignment of available resources to various uses. In the context of an entire economy, resources can be allocated by markets, by central planning, or by some combination of the two. In project management, resource allocation or resource management is the scheduling of activities and the resources required by those activities while taking into consideration both the resource availability and the project time.
Strategic planning: In strategic planning, resource allocation is a plan for using available resources, for example human resources, especially in the near term, to achieve goals for the future. It is the process of allocating scarce resources among the various projects or business units.
There may be contingency mechanisms such as a priority ranking of items excluded from the plan, showing which items to fund if more resources should become available and a priority ranking of some items included in the plan, showing which items should be sacrificed if total funding must be reduced.
Algorithms: Resource allocation may be decided by using computer programs applied to a specific domain to automatically and dynamically distribute resources to applicants.
This is especially common in electronic devices dedicated to routing and communication. For example, channel allocation in wireless communication may be decided by a base transceiver station using an appropriate algorithm.
In one paper on CPU time slice allocation an auction algorithm is compared to proportional share scheduling.
CHAP IV POLICY, MARKET AND INSTITUTIONAL FAILURES WITH NATURAL
RESOURCES CONSERVATION
IV.0 Introduction
Policy institutional and Market failures are responsible for the difference between actual outcomes and optimal resource use. Policy failure refers to situations where inappropriate government policies, or absence of required policy results in market distortions for natural resources use, aggravated market failures and natural resources degradation by private or public users. Police provides guidelines for society to act in certain ways or provides a sense of direction to achieve certain goals. Therefore in respect to natural resources, policy usually provides principles or direction as to how society uses the resources to achieve certain national development goals. Resource degradation may result from policy failure in three ways:
Broad macro-economic and fiscal policies can influence how people use natural resource production inputs. Ex: support from out to any Nature resource project
Regulatory policies governing natural resources may not be adequate to correct market failure.
Conservation policies may be poorly designed and implemented
IV.1 Importance of non-market Institutions
Institutions (non-market institutions) are simply defined as rules of conduct that facilitate coordination or govern relationships between individuals or groups in a society. An institutional economist, provides a rules based definition that identifies institutions as the rules of the game of the society or more formally, as the humanly devised constraints that structure human interaction.
According to this definition institutions are composed of both formal rules (constitutions, laws, property rights) and informal constraints (norms of behavior, sanctions, taboos, codes of conduct)
IV.2 Difference between Institutions and Organizations
To distinguish institutions from Organization; the latter are the ‘players or groups of individuals (political parties, a regulatory agency ect…)
Institutions play an important part in effective natural resource and environmental management. Institutional failure is more often than not a major contributor to natural resources degradation and loss. Legislation usually defines broad issues, sets objectives, definitions and identifies the legal mandate of the government and other stakeholders in conservation.
Institutions are important because its limit human actions in recurring or repeated interaction, in that, particular behavior is forbidden, encouraged or allowed. They enable reliable expectations on other players and reduce the enforcement and monitoring costs of economic transactions.
IV.3 Market failure
Central to environmental economics is the concept of market failure. Market failure means that markets fail to allocate resources efficiently. As stated by Hanley, Shogren, and White (2007) in their textbook Environmental Economics: "A market failure occurs when the market does not allocate scarce resources to generate the greatest social welfare. A wedge exists between what a private person does given market prices and what society might want him or her to do to protect the environment. Such a wedge implies wastefulness or economic inefficiency; resources can be reallocated to make at least one person better off without making anyone else worse off." Common forms of market failure include externalities, non-excludability and non-rivalry.
IV.3.1 Element of Market failure
Different economists have different views about what events are the sources of market failure. Mainstream economic analysis widely accepts a market failure (relative to Pareto efficiency) can occur for three main reasons: if the market is "monopolized" or a small group of businesses hold significant market power, if production of the good or service results in an externality, or if the good or service is a "public good".
IV.3.2 Nature of the market
Agents in a market can gain market power, allowing them to block other mutually beneficial gains from trade from occurring. This can lead to inefficiency due to imperfect competition, which can take many different forms, such as monopolies, monopsonies, or monopolistic competition, if the agent does not implement perfect price discrimination. In a monopoly, the market equilibrium will no longer be Pareto optimal.
It is then a further question about what circumstances allow a monopoly to arise. In some cases, monopolies can maintain themselves where there are "barriers to entry" that prevent other companies from effectively entering and competing in an industry or market. A natural monopoly is a firm whose per-unit cost decreases as it increases output; in this situation it is most efficient (from a cost perspective) to have only a single producer of a good.
IV.3.3 Sources of Market failure
Sources of market failure arise due to the absence of the conditions stated above like
Market imperfections A market where information is not quickly disclosed to all participants in it and where the matching of buyers and sellers isn't immediate. Generally speaking, it is any market that does not adhere rigidly to perfect information flow and provide instantly available buyers and sellers.
IV.3.4 Nature of the goods
Non-excludability: Some markets can fail due to the nature of the goods being exchanged. For instance, goods can display the attributes of public goods or common goods, wherein sellers are unable to exclude non-buyers from using a product, as in the development of inventions that may spread freely once revealed.
This can also lead to resource depletion in the case of common-pool resources, where, because use of the resource is rival but non-excludable, there is no incentive for users to conserve the resource. An example of this is a lake with a natural supply of fish: if people catch the fish faster than they can reproduce, then the fish population will dwindle until there are no fish left for future generations.
IV.3.5 Common goods and public goods
When it is too costly to exclude some people from access to an environmental resource, the resource is either called a common property resource (when there is rivalry for the resource, such that one person's use of the resource reduces others' opportunity to use the resource) or a public good (when use of the resource is non-rivalrous). In either case of non-exclusion, market allocation is likely to be inefficient.
The mitigation of climate change effects is an example of a public good, where the social benefits are not reflected completely in the market price. This is a public good since the risks of climate change are both non-rival and non-excludable. Such efforts are non-rival since climate mitigation provided to one does not reduce the level of mitigation that anyone else enjoys.
IV.3.5.1 Market Failure, Economic Need for Government
Economic theories of market failure justify a legitimate role for the government to work as an economic agent
• To correct for externalities by forcing private agents to pay for the full cost of their actions
• To regulate markets to correct for the market failure of asymmetric information
• To provide public goods to correct for the market failure caused by the free rider problem
Identifying cases and causes of market failure provides a government a reason to intervene in markets to act as an economic agent to prevent or correct for market failure.
However, there is no guarantee that the government will work effectively as an economic agent. In fact, there are many ways the government can fail to create economically efficient outcomes.
IV.3.5.2 Government Correcting Markets
Market failure does not mean that the government should intervene and replace markets. Government programs and bureaucracy aimed to address market failure can create other types of economic inefficiency. Instead or replacing markets, government action can support markets (such as “lemon laws” for used cars) or create markets (such as pollution permits).
Governments can also change situations so people will act in ways that are more beneficial. Richard Thaler and Cass Sunstein proposed an idea called “Nudge” for use in issues like organ donations and funding retirement accounts where people have to “opt in” to participate in the programs with the result that too few participate. They argue that by switching the choice to having people “opt out” of the program
IV.3.5.3 Public Choice Theory & Government Failure
American economist James Buchanan won the Nobel Prize in economics for his work in Public Choice Theory which is the economic analysis of government decision making. At the core of Public Choice Theory is the recognition that the government is not unified force in the economy, but is instead an organization made up of self-interested individuals. Buchanan has described Public Choice by saying that it is “politics without romance” basically; it does not see government as a noble force, just another imperfect institution.
Public Choice Theory means that government officials think about more than just the social impact of policy, but on how the policy will impact them personally and professionally.
The implication of this is that economists recognize that government policies intended to correct for market failure, or for any other reason, have to be enacted in a such a way as to not to create government failure.
IV.3.5.4 Government Supply of Public Goods, Cost vs. Benefit
A primary role of government as an economic agent is to supply public goods. Because of the free rider problem, there is no market that will supply public goods, such as roads, police and fire protection.
The optimal quantity of a public good should be based on a “cost-benefit” analysis of that good. The public good should be supplied in the amount that will yield the greatest net benefit (benefit minus cost).
However, in reality, the cost-benefit ratio is only one consideration that a society uses in deciding the amount of public goods to be supplied. The other considerations that are used in political decisions, while they may matter greatly to the individuals involved, may result in policy decisions that may not be very economical the socially best use of resources.
Tyranny of the Majority Problem: One of the problems with democracy is the ability of a majority group to extract benefits from a minority or push costs onto a minority. Simply put, a democratic decision reflects the cost-benefit choice made by the majority group, which may not be the most economically efficient choice.
However, it should be noted that the majority can take the property of the minority if it done in a manner that respects the legal rights of the minority and the “social contract”.
IV.3.6 Cost in Economics
According to the Law of Supply: Firms are willing to produce and sell a greater quantity of a good when the price of the good is high; these results in a supply curve that slopes upward.
The Firm’s Objective The economic goal of the firm is to maximize profits.
IV.3.6.1 Costs in the short run and the long run
For many firms, the division of total costs between fixed and variable costs depend on the time horizon being considered.
- In the short run, some costs are fixed.
- In the long run, all fixed costs become variable costs.
Because many costs are fixed in the short run but variable in the long run, a firm’s long-run cost curves differ from its short-run cost curves.
Total Revenue: The amount a firm receives for the sale of its output.
Total Cost: The market value of the inputs a firm uses in production.
Profit is the firm’s total revenue minus its total cost.
Profit = Total revenue - Total cost
Example:
At the end of 2013, Mironko Firm Accountability balance sheet had the total revenue of 150 Million when at the beginning of the said year; the estimated company had 120 Million. What was the surplus on the closely year?
Solution
P=TR-TC 150-120= 30 Million
IV.3.6.2 Costs as Opportunity Costs
A firm’s cost of production includes all the opportunity costs of making its output of goods and services.
IV.3.6.3 Explicit and Implicit Costs
A firm’s cost of production include explicit costs and implicit costs.
Explicit costs are input costs that require a direct outlay of money by the firm.
Implicit costs are input costs that do not require an outlay of money by the firm.
IV.3.6.4 Economic Profit versus Accounting Profit
Economists measure a firm’s economic profit as total revenue minus total cost, including both explicit and implicit costs.
Accountants measure the accounting profit as the firm’s total revenue minus only the firm’s explicit costs.
IV.3.6.5 Transaction costs
A transaction cost is a cost incurred in making an economic exchange (restated: the cost of participating in a market).
Transaction costs can be divided into three broad categories:
- Search and information costs are costs such as those incurred in determining that the required good is available on the market, which has the lowest price, etc.
- Bargaining costs are the costs required to come to an acceptable agreement with the other party to the transaction, drawing up an appropriate contract and so on. In game theory this is analyzed for instance in the game of chicken. On asset markets and in market microstructure, the transaction cost is some function of the distance between the bid and ask.
- Policing and enforcement costs are the costs of making sure the other party sticks to the terms of the contract, and taking appropriate action (often through the legal system) if this turns out not to be the case.
Ignorance and Uncertainty
Ignorance and Uncertainty overviews a variety of approaches to the problem of indeterminacies in human thought and behavior. This book examines, in depth, trends in the psychology of judgment and decision-making under uncertainty or ignorance. Research from the fields of cognitive psychology, social psychology, organizational studies, sociology, and social anthropology are reviewed here in anticipation of what Dr. Smithson characterizes as the beginning of a "creative dialogue between these researchers". Ignorance and Uncertainty offers the conceptual framework for understanding the paradigms associated with current research. It discusses the ways in which attitudes toward ignorance and uncertainty are changing, and addresses issues previously ignored.
Short-sightedness
Shortsightedness: a lack of prudence and care by someone in the management of resources improvidence imprudence a lack of caution in practical affairs prodigality, profligacy, extravagance the trait of spending extravagantly shiftlessness, wastefulness, waste the trait of wasting resources; "a life characterized by shiftlessness and waste"; "the wastefulness of missed opportunities"
The ear-sightedness (American English) and short-sightedness (British English), is a condition of the eye where the light that comes in does not directly focus on the retina but in front of it, causing the image that one sees when looking at a distant object to be out of focus, but in focus when looking at a close object.
When used colloquially, 'myopia' can also refer to a view on or way of thinking about something which is by extension of the medical definition hyper-focused and fails to include a larger context beyond the focus.
Eye care professionals most commonly correct myopia through the use of corrective lenses, such as glasses or contact lenses. It may also be corrected by refractive surgery, though there are cases of associated side effects. The corrective lenses have a negative optical power (i.e. have a net concave effect) which compensates for the excessive positive diopters of the myopic eye. Negative diopters are generally used to describe the severity of the myopia, as this is the value of the lens to correct the eye. High-degree myopia, or severe myopia, is defined as -6 diopters or worse.
Irreversibility
Irreversible has been associated with a series of films defined as the cinéma du corps ("cinema of the body"), which according to Palmer share affinities with certain avant-garde productions: an attenuated use of narrative, assaulting and often illegible cinematography, confrontational subject material, a pervasive sense of social nihilism or despair. Irreversible has also been associated with the New French Extremity movement
CHAP V ENVIRONMENTAL PROTECTION AND VALUATION
V.0 Environmental protection
Is a practice of protecting the natural environment on individual, organizational or governmental levels, for the benefit of both the natural environment and humans. Due to the pressures of population and technology, the biophysical environment is being degraded, sometimes permanently.
This has been recognized, and governments have begun placing restraints on activities that cause environmental degradation. Since the 1960s, activity of environmental movements has created awareness of the various environmental issues. There is no agreement on the extent of the environmental impact of human activity, and protection measures are occasionally criticized.
V.0.1 Approaches to environmental protection
V.0.1.1 Voluntary environmental agreements
In industrial countries, voluntary environmental agreements often provide a platform for companies to be recognized for moving beyond the minimum regulatory standards and thus support the development of best environmental practice. In developing countries, such as throughout Latin America, these agreements are more commonly used to remedy significant levels of non-compliance with mandatory regulation. The challenges that exist with these agreements lie in establishing baseline data, targets, monitoring and reporting.
V.0.1.1.1 Ecosystems approach
An ecosystems approach to resource management and environmental protection aims to consider the complex interrelationships of an entire ecosystem in decision making rather than simply responding to specific issues and challenges.
Ideally the decision-making processes under such an approach would be a collaborative approach to planning and decision making that involves a broad range of stakeholders across all relevant governmental departments, as well as representatives of industry, environmental groups and community. This approach ideally supports a better exchange of information, development of conflict-resolution strategies and improved regional conservation.
V.0.1.1.2 International environmental agreements
Many of the earth’s resources are especially vulnerable because they are influenced by human impacts across many countries. As a result of this, many attempts are made by countries to develop agreements that are signed by multiple governments to prevent damage or manage the impacts of human activity on natural resources.
This can include agreements that impact factors such as climate, oceans, rivers and air pollution. These international environmental agreements are sometimes legally binding documents that have legal implications when they are not followed and, at other times, are more agreements in principle or are for use as codes of conduct. These agreements have a long history with some multinational agreements being in place from as early as 1910 in Europe, America and Africa. Some of the most well-known multinational agreements include: the Kyoto Protocol, Vienna Convention on the Protection of the Ozone Layer and Rio Declaration on Environment and Development.
V.0.1.1.3 Government
Venkata suhaas is the first person from INDIA who started conservation of environment.Discussion concerning environmental protection often focuses on the role of government, legislation, and law enforcement. However, in its broadest sense, environmental protection may be seen to be the responsibility of all the people and not simply that of government. Decisions that impact the environment will ideally involve a broad range of stakeholders including industry, indigenous groups, and environmental group and community representatives. Gradually, environmental decision-making processes are evolving to reflect this broad base of stakeholders and are becoming more collaborative in many countries.
Many constitutions acknowledge the fundamental right to environmental protection and many international treaties acknowledge the right to live in a healthy environment. Also, many countries have organizations and agencies devoted to environmental protection. There are international environmental protection organizations, as the United Nations Environment Programme.
China
The Longwanqun National Forest Park is a nationally protected nature area in Huinan County, Jilin, China
Formal environmental protection in China House was first stimulated by the 1972 United Nations Conference on the Human Environment held in Stockholm, Sweden. Following this, they began establishing environmental protection agencies and putting controls on some of its industrial waste. China was one of the first developing countries to implement a sustainable development strategy.
In 1983 the State Council announced that environmental protection would be one of China’s basic national policies and in 1984 the National Environmental Protection Agency (NEPA) was established. Following severe flooding of the Yangtze River basin in 1998, NEPA was upgraded to the State Environmental Protection Agency (SEPA) meaning that environmental protection was now being implemented at a ministerial level. In 2008, SEPA became known by its current name of Ministry of Environmental Protection of the People's Republic of China (MEP).
V.0.1.1.4 Pollution control instruments in China
Command-and-control
|
Economic incentives
|
Voluntary instruments
|
Public participation
|
Concentration-based pollution discharge controls
|
Pollution levy fee
|
Environmental labeling system
|
Clean-up campaign
|
Mass-based controls on total provincial discharge
|
Non-compliance fines
|
ISO 14000 system
|
Environmental awareness campaign
|
Environmental impact assessments (EIA)
|
Discharge permit system
|
Cleaner production
|
Air pollution index
|
Three synchronization program
|
Sulfur emission fee
|
NGOs
|
Water quality disclosure
|
Deadline transmission trading
|
Administrative permission hearing
| ||
Centralized pollution control
|
Subsidies for energy saving products
| ||
Two compliance policy
|
Regulation on refuse credit to high-polluting firms
| ||
Environmental compensation fee
|
V.0.1.1.5 The effort of the Western Countries (European Union) on
Protection
Environmental protection has become an important task for the institutions of the European Community after the Maastricht Treaty for the European Union ratification by all the Member States. The EU is already very active in the field of environmental policy with important directives like those on environmental impact assessment and on the access to environmental information for citizens in the Member States.
Russia: In Russia environmental protection is considered an integral part of national safety. There is an authorized state body - the Federal Ministry of Natural Resources and Ecology. However, there are a lot of environmental problems.
Latin America
V.0.1.1.6 Top 5 Countries by biological diversity
The United Nations Environment Programme (UNEP) has identified 17 megadiverse countries. The list includes six Latin American countries: Brazil, Colombia, Ecuador, Mexico, Peru and Venezuela. Mexico and Brazil stand out among the rest because they have the largest area, population and number of species. These countries represent a major concern for environmental protection because they have high rates of deforestation, ecosystems loss, pollution, and population growth.
Brazil: Brazil has the largest amount of the world's tropical forests, 4,105,401 km2 (48.1% of Brazil), concentrated in the Amazon region.
Brazil is home to vast biological diversity, first among the mega diverse countries of the world, having between 15%-20% of the 1.5 million globally described species.
In 2011, protected areas of the Amazon covered 2,197,485 km2 (an area larger than Greenland), with conservation units, like national parks, accounting for just over half (50.6%), and indigenous territories representing the remaining 49.4%.
Mexico: With over 200,000 different species, Mexico is home to 10–12% of the world's biodiversity, ranking first in reptile biodiversity and second in mammals ,one estimate indicates that over 50% of all animal and plant species live in Mexico.
V.1 Environmental Valuation
is a survey-based economic technique for the valuation of non-market resources, such as environmental preservation or the impact of contamination. While these resources do give people utility, certain aspects of them do not have a market price as they are not directly sold – for example, people receive benefit from a beautiful view of a mountain, but it would be tough to value using price-based models. Contingent valuation surveys are one technique which is used to measure these aspects.
Contingent valuation is often referred to as a stated preference model, in contrast to a price-based revealed preference model. Both models are utility-based. Typically the survey asks how much money people would be willing to pay (or willing to accept) to maintain the existence of (or be compensated for the loss of) an environmental feature, such as biodiversity.
The report looks at the cost of running efficiency programs in 20 states from 2009 to 2012 and finds an average cost of 2.8 cents per kWh. About one-half to one-third the cost of alternative new electricity resource options, as illustrated by the following graph from the report:
Levelized costs of electricity resource options. Source: Energy efficiency data represent the results of this analysis for utility program costs (range of four-year averages for 2009-2012); supply costs are from Lazard 2013.
This is according to The report analyzes energy efficiency costs from states across the country, including: Arizona, California, Colorado, Connecticut, Hawaii, Illinois, Iowa, Massachusetts, Michigan, Minnesota, New Mexico, New York, Nevada, Oregon, Pennsylvania, Rhode Island, Texas, Utah, Vermont, and Wisconsin.
V.1.1 Meaning and Types of Environmental values
Environmental Values started as a quarterly peer-reviewed academic journal closely associated with the ecological economics movement, but also firmly based in applied ethics. Subjects covered are philosophy, economics, politics, sociology, geography, anthropology, ecology, and other disciplines, which relate to the present and future environment of human beings and other species.
The total Economic Value (TVT) of natural resource can be divided into two broad categories: Instrumental or use value and intrinsic or non- use (passive use) value
Total economic value (TEV) = Use value (UV) + non-use value (NV), the UV may be further broken down into direct and indirect use values which should be calculate in percentage.
Example: At the end of Exercise, Rwanda’s state decided to demonstrate the Environmental Value of its area, calculate the total Economic Value of the Environmental Value, when the UV= 0,04 and the NV= 0,02
TEV=UV+NV UV=0,04 4% and NV=0,02
TEV=4+2=6%
V.1.2 Environmental impact on Productivity
Productivity: Productivity is a measure of the efficiency of production. Productivity is a ratio of production output to what is required to produce it (inputs). The measure of productivity is defined as a total output per one unit of a total input.
In order to obtain a measurable form of productivity, operationalization of the concept is necessary. In explaining and operationalizing, a set of production models are used. A production model is a numerical expression of the production process that is based on production data (i.e., measured data in the form of prices and quantities of inputs and outputs.
In order to obtain a measurable form of productivity, operationalization of the concept is necessary. In explaining and operationalizing, a set of production models are used. A production model is a numerical expression of the production process that is based on production data (i.e., measured data in the form of prices and quantities of inputs and outputs.
V.1.3.1 Production Income Model
There are no criteria that might be universally applicable to success. Nevertheless, there is one criterion by which we can generalize the rate of success in production. This criterion is the ability to produce surplus value.
V.1.3.2 Impact on Output Productivity
When there is productivity growth, even the existing commitment of resources generates more output and income. Income generated per unit of input increases. Additional resources are also attracted into production and can be profitably employed.
At the national level, productivity growth raises living standards because more real income improves people's ability to purchase goods and services (whether they are necessities or luxuries), enjoy leisure, improve housing and education and contribute to social and environmental programs.
Over long periods of time, small differences in rates of productivity growth compound, such as interest in a bank account, and can make an enormous difference to a society's prosperity. Nothing contributes more to the reduction of poverty, increases in leisure, and to the country's ability to finance education, public health, environment, and the arts.
When all outputs and inputs are included in the productivity measure it is called total productivity. Outputs and inputs are defined in the total productivity measure as their economic values. The value of outputs minus the value of inputs is a measure of the income generated in a production process. It is a measure of total efficiency of a production process and as such the objective to be maximized in production process.
Productivity is a crucial factor in production performance of firms and nations. Increasing national productivity can raise living standards because more real income improves people's ability to purchase goods and services, enjoy leisure, improve housing and education and contribute to social and environmental programs. Productivity growth also helps businesses to be more profitable.
The environmental impact of pesticides consists of the effects of pesticides on non-target species. Over 98% of sprayed insecticides and 95% of herbicides reach a destination other than their target species, because they are sprayed or spread across entire agricultural fields. Runoff can carry pesticides into aquatic environments while wind can carry them to other fields, grazing areas, human settlements and undeveloped areas, potentially affecting other species. Other problems emerge from poor production, transport and storage practices. Over time, repeated application increases pest resistance, while its effects on other species can facilitate the pest's resurgence.
Over time, pesticides have generally become less persistent and more species-specific, reducing their environmental footprint. In addition the amounts of pesticides applied per hectare have declined, in some cases by 99%. However, the global spread of pesticide use, including the use of older/obsolete pesticides that have been banned in some jurisdictions, has increased overall
V.2 Environmental Impact Assessment
Environmental impact assessment is the formal process used to predict the environmental consequences (positive or negative) of a plan, policy, program, or project prior to the decision to move forward with the proposed action. Formal impact assessments may be governed by rules of administrative procedure regarding public participation and documentation of decision making, and may be subject to judicial review. An impact assessment may propose measures to adjust impacts to acceptable levels or to investigate new technological solutions.
The purpose of the assessment is to ensure that decision makers consider the environmental impacts when deciding whether or not to proceed with a project. The International Association for Impact Assessment (IAIA) defines an environmental impact assessment as "the process of identifying, predicting, evaluating and mitigating the biophysical, social, and other relevant effects of development proposals prior to major decisions being taken and commitments made.
Methods
General and industry specific assessment methods are available including:
- Industrial products: Product environmental life cycle analysis (LCA) is used for identifying and measuring the impact of industrial products on the environment. These EIAs consider activities related to extraction of raw materials, ancillary materials, equipment; production, use, disposal and ancillary equipment.
- Genetically modified plants: Specific methods available to perform EIAs of genetically modified organisms include GMP-RAM and INOVA.
- Fuzzy logic: EIA methods need measurement data to estimate values of impact indicators. However many of the environment impacts cannot be quantified, e.g. landscape quality, lifestyle quality and social acceptance. Instead information from similar EIAs, expert judgment and community sentiment are employed. Approximate reasoning methods known as fuzzy logic can be used. A fuzzy arithmetic approach has also been proposed and implemented using a software tool (TDEIA).
V.2.1 Environmental assessment (EA)
An environmental assessment (EA) is an environmental analysis prepared pursuant to the National Environmental Policy Act to determine whether a federal action would significantly affect the environment and thus require a more detailed Environmental Impact Statement (EIS). The certified release of an Environmental Assessment results in either a Finding of No Significant Impact (FONSI) or an EIS.
Federal agencies have responded by streamlining their regulations that implement NEPA environmental review, by defining categories of projects that by their well understood nature may be safely excluded from review under NEPA, and by drawing up lists of project types that have negligible material impact upon the environment and can thus be exempted.
V.2.2 Environmental impact statement
The adequacy of an environmental impact statement (EIS) can be challenged in federal court. Major proposed projects have been blocked because of an agency's failure to prepare an acceptable EIS.
One prominent example was the West way landfill and highway development in and along the Hudson River in New York City. Another prominent case involved the Sierra Club suing the Nevada Department of Transportation over its denial of the club's request to issue a supplemental EIS addressing air emissions of particulate matter and hazardous air pollutants in the case of widening U.S. Route 95 through Las Vegas. The case reached the United States Court of Appeals for the Ninth Circuit, which led to construction on the highway being halted until the court's final decision. The case was settled prior to the court's final decision.
V.2.2.1 An Optimistic Note: the environmental Kuznets Curve
Simon Kuznets (1955) has made an empirical observation on the relationship between inequality and per capita income according to his Observation, inequality is low when per capita income is low, and then rises per capita income. Pollution and growth then are characterized by an Environmental Kuznets curve (stern 2003). Let emissions per head S be a linear function of output per head Y and assume that the function H itself depends on the level of output per head. Then
S=HY
H=A-BY from this we have
S=(A-BY)Y
S=YA-
The hypothesis is a rather coarse view of relationship between pollution and growth. It is based on a change in technology and environmental policy with rising income, but it cannot define away the issue of specific scarcities of resources or the negative impact of pollution on growth, if the technology is given.
REFERENCES AND NOTES
1. David Pearce (2002). "An Intellectual History Of Environmental Economics", Annual Review of Energy and the Environment 2002, 27:57–81.
2. Markandy, A. Perelet, R. Mason, P and Taylor, T (2002). Dictionary of Environmental Economics. Earth scan Publication Ltd, London and Sterling, V,A
3. OECD (1997), Evaluating Economic Instruments for Environmental Policy OECD,Paris, France.
4. Williams, J. R., et al., Financial and Managerial Accounting, McGraw-Hill, 2012, p. 1117.
5. Project Economics and Decision Analysis, Volume I: Deterministic Models, M.A.Main, Page 269
6. Solomon, U., A detailed look at the three disciplines, environmental ethics, law and education to determine which plays the most critical role in environmental enhancement and protection. Environment, Development and Sustainability, 2010. 12(6): p. 1069-1080.
7. Husen, A (2004) Principles of Environmental Economics. 2nd Edition, Routledge, London and New York PP 67-73
8. Knetsch J.L. (1994). Environmental valuation: some problems of wrong questions and misleading answers. Environmental Values 3(4), 351–368. [A critique of the approach taken by leading commentators on monetary valuation that includes insightful remarks on the NOAA panel report.]
9. "Principle of Environmental Impact Assessment Best Practice." International Association for Impact Assessment. 1999.
10. Aimé MUYOMBANO (PhD Scholar), Syllabus of Society, Environment and Development, INILAK.
11. Aimé MUYOMBANO (PhD Scholar), Syllabus of Industrial Economics, INILAK.
12. Aimé MUYOMBANO (PhD Scholar), Syllabus of Organization and Society Development, INILAK.
13. Aimé MUYOMBANO (PhD Scholar), Syllabus of Development Economics, INILAK.
14. Aimé MUYOMBANO (PhD Scholar), Syllabus “Principles Sof Economics, INILAK.
15. Aimé MUYOMBANO (PhD Scholar), Syllabus of Key issues of International Relations, ULK.
16. Aimé MUYOMBANO (PhD Scholar), Syllabus of Advanced International Relations ULK.
17. Aimé MUYOMBANO (PhD Scholar), Syllabus of Contemporary Political Systems Analysis, ULK.
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19. Aimé MUYOMBANO (PhD Scholar), Syllabus of Strategies and policies of Development, UR
20. Aimé MUYOMBANO (PhD Scholar), Syllabus Labor Economics INES Ruhengeri
21. MUYOMBANO IRIVUZIMANA (PhD Scholar), Syllabus Rwanda Economy INES Ruhengeri
22. Aimé MUYOMBANO (PhD Scholar), Syllabus Global mass communication and International Diplomacy, Jomo Kenyatta University of Agriculture and Technology
23. Aimé MUYOMBANO (PhD Scholar), Syllabus International Economics Jomo Kenyatta University of Agriculture and Technology
24. Aimé MUYOMBANO (PhD Scholar), Syllabus Economics Analysis Jomo Kenyatta University of Agriculture and Technology
Author Prof. Dr. Rugema D. Muyombano
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