Economics of the Environment

Abstract

This chapter discusses the foundation of environmental economics. Human activity and behavior in modern society is all incorporated into the market economy system. Economic activity produces wealth when we gather resources from the natural world, processing the material with human labor and technology to produce a good that has added value, exchange the good for other goods produced, and consume them. It is by the adjustment of supply and demand through price that this economic activity is efficiently controlled. The market is not all powerful, however, and it can be argued that a variety of environmental problems in the world are the result of market failure. A typical problem is the excessive consumption of resources or the deterioration of resources, which can be traced to the fact that environmental resources such as air, water, and soil can easily be used by anyone as free goods or nearly for free. Pollution of air and water are typical examples of these dynamics. One major role of environmental management is to control, by various measures, the use of environmental resources that previously have been treated as free goods. Environment problems and the economy are inextricably connected. The important thing now is to choose a desirable path for both the economy and environment. For this, we need a shift in demand toward products and services that are good for the environment.