Economic Activity and the Economic Activity and the EnvironmentEnvironment

ExternalitiesExternalities• What are externalities?

• What are the associated costs?

ExternalitiesExternalities

• defined as third party (or spill-over) effects arising from the production and/or consumption of goods and services for which no appropriate compensation is paid. 

• Externalities can cause market failure if the price mechanism does not take into account the full social costs and social benefits of production and consumption.

Social costs?Social costs?

Social costsSocial costs

• includes all the costs of production of the output of a particular good or service. We include the third party (external) costs arising, for example, from pollution of the atmosphere.

Private CostsPrivate Costs

• What are Private costs?

Private CostsPrivate Costs

• A cost incurred in the production process by the producer; including tax and profit margins that are anticipated

• Externalities create a divergence between the private and social costs of production.

SOCIAL COST = PRIVATE COST SOCIAL COST = PRIVATE COST + EXTERNALITY+ EXTERNALITY

What is Cost Benefit What is Cost Benefit Analysis?Analysis?

Cost benefit analysis finds all the Cost benefit analysis finds all the positive factors known as ‘positive factors known as ‘benefits’benefits’ . .

And subtracts all the negatives, And subtracts all the negatives, ‘‘costs’costs’. The difference indicates . The difference indicates whether the planned action is whether the planned action is

advisable. advisable.

In PairsIn Pairs

• Come up with an example where social costs outweigh private costs

• Where Private costs outweigh social costs

Race and The EnvironmentRace and The Environment

• The Center for Policy Alternatives (CPA) in the USA released a study in 1987;Toxic Wastes and Race Revisited which revealed that commercial toxic waste facilities are even more likely to be located in minority communities than ever before

• It found that people of colour are nearly 50 percent more likely to live near a commercial toxic waste facility than whites

• And three times more likely to live in communities with multiple toxic waste facilities.

• from 1980 to 1993, the concentration of minorities in zip code areas with commercial toxic waste facilities grew from 25 to 31 percent

• Environmental racism, which suggests a higher level of exposure to environmental hazards for racial minorities and the poor than to non-minorities and those more economically advantaged,

According to the journal ‘Environment’ (May ‘94) The argument that unequal environmental protection undermined 3 basic equalities.

• Procedural Equality• Geographical Equality• Social Equality Ironically finding that some Government actions

have increased the problems due to stringent regulations and least line of resistance

So what do we know?So what do we know?

• Externalities are costs to a third party• Social costs are all cost plus externalities• Private costs are the costs incurred by the producers• Cost benefit analysis is a method of working out the

costs in terms of benefits and loses.• Race and the environment is a major issue• Inequality exists within this.

The Service SectorThe Service Sector

• By far the most dominant sector in MEDC’s

• Is of considerable significance in Developing countries

• Clark Fisher model shows this.

Osaka – JapanOsaka – Japan

• Dubbed the second city of Japan

• Osaka is historically the commercial capital of Japan

• It’s the heart of Japan's second largest, and the world's ninth largest metropolitan area

• Population of 19,220,000.

Composition of IndustryComposition of Industry

Classification of Service Classification of Service IndustriesIndustries

• Service industries vary hugely from

• Most importantly between producers and consumers

• In pairs try to classify service industries into groups

Variety Of Service IndustriesVariety Of Service Industries

Has changed due to:

• Adaptation of new technologies

• Increase in disposable income

• Greater leisure time• Demographic changes• New social values

Service provision and location

• Distribution and density of population

• Variations in purchasing power

• Availability of Labour• Proximity to other

services• Demographic factors

RetailingRetailing

• What is retailing???

RetailingRetailing

• Consists of those business activities involved in the sale of goods and services to consumers for their personal, family or household use.

RetailingRetailing

• In Pairs try and think what kind of changes retailing has gone through and how it has changed the organisation and make up of retail industry.

Recent TrendsRecent Trends

• Number of independent traders has fallen

• Big retailers have gone transnational

• Teleshopping

Growth of RetailingGrowth of Retailing

Problems with SuperstoresProblems with Superstores

• Taking customers away from rural shops

• Often build on Greenfield sites

• Huge parking areas and generate lots of traffic

Finally...Finally...

• Try to find out more about the classification of industries

• Explain the attraction of London for financial institutions

• What are the reasons for the decentralisation of back office functions.

• Why has service provision declined within rural areas.

Further ReadingFurther Reading

• Guinness and Nagle Chapter 4• http://tutor2u.net/economics/content/topics/externalit

ies/what_are_externalities.htm• Geography an Integrated Approach Chapters 19 &

20• http://www.ft.com/cms/s/0/c729f3f6-d65b-11dc-b9f4

-0000779fd2ac.html?nclick_check=1• Moodle