Economics

Relationship Between The Environment And The Economic System

Knowledge of the environment and the economy is essential to understand the significance of ‘Environment‘ as a supplier of ma to the ‘Economy‘ and the return of these materials back to the environment as wastes and residuals. This will to understand enable us to understand better the relationship between the environment and the economic system.

Relationship Between The Environment And The Economic System

We know that the ‘environment‘ is a set of natural conditions surrounding us, such as, air, water, land, living space, meteorological conditions, composition of atmosphere etc. The environment provides us public goods for consumption, such as, air to breathe, the amenity of the landscape, water for our living and recreational functions.

A public good is characterized by two important features.

Unlike private goods, public goods can be used by many individuals at the same time without the users competing with one another. There is no rivalry in use.

Secondly, a public good does not permit the exclusion of competing users. An outstanding example is the Light House which can be used by every fisherman, regardless of the wishes to share the costs.

Environmental quality is a consumption public good. The environment as a public good for consumption can be used in two ways.

First, the environment provides consumption goods that are measurable in physical units, such as oxygen in cubic centimeters inhaled per minute.

Second, the environment provides ‘inputs’ which are qualitatively valued (amenity of the landscape). While in the first case, mass flows from the environment for consumption, this does not necessarily apply the second case.

Environment, besides being a consumption good, also provides resources that are used as inputs in production activities.

For example, water, minerals, oxygen, sun’s heat etc., are used for combustion process. The commodities generated by the resources are supplied for consumption.

 We know that economic system is characterized by production, consumption and emission. Joint products of the production and consumption activities which have no further utility are emitted by into the environment. Joint products exist when several goods are produced at the same time.

The reception of emissions that is of joint- products no longer utilizable is the third function of the environment for the economic system. The emitted pollutants are absorbed by different environmental media, such as atmosphere, Water and land. The emitted pollutants are partly decomposed, accumulated transported to other areas, or transformed. Emissions, therefore, are not identical with pollutants ambient in the environment.

Emissions are the undesired joint outputs of production and consumption activities. Pollutants are ambient in a certain environmental medium at a certain time. The distinction between emissions and pollutants ambient in the environment is important. One should refer to pollutants when defining target variable, viz., and environmental quality. However, economic policy should be directed against the emissions.

Thus, the environment performs three important functions in relation to the economy.

  • It supplies quality environment for good living.
  • (ii) It supplies resources for production and consumption in the economy.
  • (iii) It receives the wastes and emissions from production and consumption.

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