Environment can be defined as our surroundings, conditions and influences that shape our life on this earth. It is the totality of natural external conditions and influences that affect the way things live and develop. This definition is rather wide and it does not come into the compass of an economist to put some limits on the nature and type of external conditions that would influence human life on earth.
Economists are interested in the environment as a resource that would affect human beings directly or indirectly. As such, the evaluation of an environment depends on its service to the humanity. For example, the air pollution in a region will directly affect the health of people and to control the pollution to have better quality of air in that region is the concern of economist, as it affects human health directly. Air pollution may in the long run destroy a forest, though the forest may not be used by people for the time being, nor people visit the forest. But, air pollution in the forest would indirectly reduce the welfare of the people in due course.
Secondly, environment should be viewed as an asset or a kind of non-reproducible capital good that produces a stream of various services to Man. These services may be of three kinds:
- Tangible services such as flow of water or minerals.
- Functional services such as removal, dispersion and degradation of wastes or residuals;
- Intangible services such as beautiful scenic view or landscape.
Services of the Environment: We have seen in the materials balance model, the various services rendered by the environment in the economy. We have also indicated above the different kinds of services of the environment. We shall amplify these in greater detail.
Environment performs valuable service to the economy by dispensing- storing and assimilating the residuals and waste by products generated due to economic activity.
It is a natural process that waste products into harmless and at times valuable transforms the potentially harmful concentration substances. Wind currents disperse of air pollutants. Rain and gravity remove pollutants from the air. In some cases, air pollution undergoes chemical change to become less harmful or even useful. Bacteria in water feed on and transform organic wastes into inorganic nutrients for algae, the first link in the aquatic food chain.