Environmental and Natural Resource Economics

About this unit

This unit uses the tools of economics to understand the environment. It starts by classifying natural resources and asking why scarcity arises and how resource depletion can be shown in national accounts. It then examines GDP and GNP and why these familiar measures can make an economy look richer while its forests, soil and air are being used up. Environmental economics adds ideas such as defensive expenditure, natural capital, carbon footprint and carbon credits. Externalities explain why markets fail to price pollution, and economic tools such as cost-benefit analysis and Extended Producer Responsibility try to correct this. The unit closes with ecosystem services and the ecological footprint, which measure what nature gives and how much people demand from it.

How to prepare

Learn the national income identities (GNP = GDP + net factor income from abroad; NDP = GDP − depreciation) and practise small calculations, including green GDP. Be clear about positive and negative externalities with everyday examples. Practise a simple present-value and benefit–cost calculation. Memorise the four kinds of ecosystem services and the meaning of carbon credit, carbon footprint and ecological footprint. Expect numericals and situation-based questions.