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The Environment Is An Economic Good


Economic Concepts Environmental Context
Markets incorporate incentives to reduce costs Solving environmental mysteries

National Content Standards Addressed:

Standard 1: Productive resources are limited. Therefore, people cannot have all the goods and services they want. As a result, they must choose some things and give up others.

Standard 2: Effective decision making requires comparing the additional costs of alternatives with the additional benefits. Most choices involve doing a little more or a little less of something; few choices are all-or-nothing decisions.

Standard 4: People respond predictably to positive and negative incentives.

Standard 5: Voluntary exchange occurs only when all participating parties expect to gain.

Standard 6: Markets exist when buyers and sellers interact. . . .

Standard 10: Institutions evolve in market economies to help individuals and groups accomplish their goals. . . .A different kind of institution, clearly defined and well enforced property rights, is essential to a market economy.

Key Points

  1. Review the tools of economic reasoning used throughout the workshop
    • i. The environment, like all economic goods, is scarce.
      • Environmental problems result from choices made by people.
        • Governments, societies, and organizations do not make choices; people do.
      • People choices are rational. They choose the alternative they believe to have the greatest excess of benefits over costs.
    • ii. All choices bear costs.
      • The choice to address (or not address) environmental problems imposes opportunity costs.
      • Low cost
    • iii. Incentives influence people’s choices about the environment.
      • People respond to incentives in predictable ways.
      • If we want to change people’s behavior, we must change the incentives.
      • Policies that reward or reduce the cost of environmentally-friendly choices and behavior will be more successful than policies that do not.
        • Many current policies lack effectiveness or experience only limited success because they increase the cost to individuals of environmentally-friendly behavior.
    • iv. Property rights shape incentives
      • People tend to take better care of things they own because they bear the costs and reap the benefits of their stewardship.
        • Common ownership undermines incentives for conservation and wise use.
        • Many problems of environmental degradation result from a lack of private ownership because no one is rewarded for conservation and wise use.
    • v. Voluntary trade through markets can provide effective solutions to environmental problems.
      • People in markets respond to positive financial incentives, work to avoid high costs, and attempt to preserve valuable uses.
      • Environmental policies that mimic or promote market exchanges can achieve environmental goals with lower costs than policies that ignore or exclude market mechanisms and incentives.
    • vi. You can’t do just one thing. The consequences of choices lie in the future.
      • All choices dealing with environmental issues have secondary effects.
      • A challenge in designing environmental policy is to anticipate unintended, secondary effects

    Assessment Activity: “The Activity That Fails” – reviewing and reinforcing the basic principles of economic reasoning

  2. Mysteries:
    • Review solutions to mysteries posed in opening session of workshop.
  3. Individual (or small group) Assessment: 3 new mysteries


  4. Economic reasoning about environmental issues is a model for:
    • Teaching the economics content standards in the issues context, and
    • Adopting an intellectual’s approach; learning to play with ideas.

    Assigned Reading: “Save the Environment! Ban High School Car Washes,” by Michelle Malkin