The relationship between economic growth/economic output and environmental problems.

v. What percentage of the world's population were the populations of: (1) the UK, (2) the USA, and (3) Japan?

The percentages of the world's population were: (1) 1.07% in the UK, (2) 4.71% in the USA, and (3) 2.33% in Japan.

vi. Looking across all the data, briefly describe the relationships between economic output/economic growth and greenhouse gas emissions. What might account for differences in per capita emissions and emissions per unit of GDP across countries? Answer in no more than 300 words.

The variation of greenhouse gas emissions in the table could be due to some countries being more productive than others or having greater economic output/growth. An indicator of the amount of economic output/growth within a country is the measurement of the GDP or GDP per person. The amount of emissions per GDP in the table links the amount of economic activity and the emissions created by that activity. Generally the greater the economic output the greater the emissions. Conversely lower productivity uses less energy and therefore produces fewer emissions.

Within market economies, which include all the countries in the table, the incentive is to achieve economic growth by the cheapest means available. In other words manufacturers within market economies are competing with each other to produce their goods at the lowest prices in order to attract buyers. As a result of the necessity to produce goods and services as economically as possible firms choose methods of production that are more likely to have a greater amount of greenhouse gas emissions than a more expensive environmentally friendly alternative.

Countries of a higher economic output/growth are likely, due to a higher degree of affluence; to have higher levels of consumption than might be seen in poorer countries. This consumption might be in the ownership of cars or greater use of energy for domestic services such as heating and appliances. This consumption would add to the level of greenhouse gas emissions and would be reflected in the amount of emissions per capita with less being linked to GDP.

Some countries may have more energy efficient means of production than others thus accounting for lower emissions per GDP. Consumption might be a bigger use of energy for some countries as opposed to production, which would result in a higher amount of emissions per GDP.

(Word Count: 300)

Question Part (b)

Examine the relationship between market mechanisms and environmental degradation. Illustrate your answer with examples from Chapter 3 of Book 2. Answer in approximately 1,000 words.

Market mechanisms may have made a significant contribution to environmental degradation. I shall examine the relationship between market mechanisms and environmental degradation by looking how market mechanisms work within a market economy, including the neoclassical model of the market before showing how environmental degradation is associated with market mechanisms. I will then examine some market and non-market means of countering environmental degradation.

Commodities exchanged within them usually define markets. Economic agents do not necessarily meet but do exchange goods and services within markets. The exchange is made for a price expressed in monetary terms. As the exchange or sale takes place property rights are then transferred from the seller to the buyer. With some exceptions property rights give the owner the authority to do with his property as he wishes. The number of agents exchanging goods varies within, and across, markets. An agent operating in a market with few other agents would have greater influence in determining prices than an agent operating in a market with a multitude of others. Agents therefore, exposed to market forces are compelled to compete. For manufacturers this would mean producing goods cheaper than competitors.

The neoclassical view of markets assumes that all resources are privately owned and that the market, left to its own devices, will allocate resources in the most efficient way. All economic agents decide what to buy or sell according to their own interests without thinking how their decisions might affect others. Manufacturers also act self interestedly when choosing resources and methods of manufacture. The actions of buyers and sellers are coordinated by the price mechanism. All information necessary for economic agents to make decisions is included in the price. If for example a shortage arises in a particular commodity the sellers of that commodity could increase the price therefore decreasing demand so that only buyers prepared, or able, to pay the new price would purchase. Consumers not willing or unable to pay the new price will use their money to buy another commodity. Prices guide producers to the goods or services they provide. If a particular commodity sells at a price too low for producers to make a profit they will produce something more profitable; if too many producers are producing the same commodity then they will have to compete with each other by producing from the cheapest resources. Those unable to sell at a profit will be pushed out of the market. In sum the price of a commodity is derived from the cost of resources used to produce it and the buyers perceived value. The 18th Century economist, Adam Smith referred to "the invisible hand" in the way the price mechanism allowed markets to make the best allocation of resources. The price mechanism therefore guides markets, like an invisible hand, without the need for intervention, to meet the needs of buyers and sellers.

The nature of the market to coordinate actions of agents solely on price without regard to others is also seen as a weakness within the market. The environmentalist Michael Jacobs referred to the "invisible elbow" as a counterpart to Smith's "invisible hand", the elbow inadvertently ruining the good done by the hand. Due to economic agents making decisions with regard only to their own private costs and benefits people who have not caused it typically experience environmental damage. The social costs and benefits, which differ or are additional to, the private costs and benefits are known as externalities. If, for example, I were to purchase a car, the salesman and myself would only be interested in and consequently pay the private costs of the car. However there will have been other costs involved in the production and use of the car such as pollution, road congestion and noise pollution. These additional costs are external from the private costs so are therefore externalities. Externalities can also be positive, but generally environmental problems are caused by negative externalities. Therefore economies that rely on market mechanisms to encourage coordination through self-interested choice are susceptible to externalities and the ensuing environmental degradation.

Nobody being responsible for natural resources they tend to be overused and prone to exhaustion. Due to the market being missing from the natural environment the use of its resources are not reflected in the price of commodities or services produced from resources. One suggestion to address this problem of externalities has been to assign property rights to all natural resources. The introduction of the market would enable owners of the natural resources to charge for over use, the cost would then be reflected in the price of the goods produced from those resources, thus reducing externalities. Yet this suggestion does not allow for the possibility that owners might only be interested in making as much profit as possible in the short term and therefore have no incentive to protect their property in the long term. Another option might be to confer social ownership making natural resources the responsibility of society, who could then control or charge for its use. This is done with fish stocks within the European Union. (Hinchliffe & Woodward 2000) The buying and selling The assigning of property rights would be impossible for public goods such as air because it would not be possible to stop other people using it. However by placing them in social ownership and then introducing charges or incentives to people who damage or improve public goods respectively could reduce externalities. Since the market is only influenced by money spent, people who have little to spend have little influence in the market. Therefore the people who are least represented in the market are children and future generations. As the market encourages economic agents to act self interestedly today's externalities are likely to have a greater impact on tomorrows generation.

I briefly looked at the way markets operated, how goods are exchanged and how economic agents are exposed to market forces. The neoclassical model introduced the idea that the market operated best if left to its own devices and would act for the common good as if guided by an 'invisible hand'. I examined possible flaws in the neoclassical model introducing the 'invisible elbow' and externalities. After briefly examining possibilities of social and private ownership of natural resources I pointed out that future generations are likely to be most affected by environmental degradation.

References:

Hinchliffe S. & Woodward K. (2000) The Natural and The Social: Uncertainty, Risk, Change, The Open University

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