ECONOMICS AND THE ENVIRONMENT

HOW CLEAN IS CLEAN ENOUGH?WHAT IS THE RIGHT AMOUNT OF

POLLUTION?WHAT IS THE RIGHT AMOUNT OF

RAINFOREST?WHAT IS THE RIGHT AMOUNT OF WHALES?

ECONOMIC CONCEPTSSOCIAL GOALSALLOCATION OF RESOURCES

ALLOCATIVE EFFICIENCYCOST EFFECTIVENESSNET VALUE

OBJECTIVESIDENTIFY ALTERNANTIVE SOCIAL

GOALS IN EVALUATING RESOURCE USEDEFINE ALLOCATIVE EFFICIENCYEXPLAIN HOW THE “RIGHT” AMOUNT

OF A PRODUCT TO PRODUCE IS FOUND, ASSUMING THE SOCIAL GOAL OF ALLOCATIVE EFFICIENCY

APPLY THE ALLOCATIVE EFFICIENCY CRITERION TO THE PRODUCT, ENVIRONMENTAL QUALITY

WHAT ARE THE BROAD SOCIAL GOALS THAT WE MIGHT CONSIDER AS WE DECIDE HOW NATURAL RESOURCES

SHOULD BE USED? ECONOMIC GROWTHFULL EMPLOYMENTEQUITYENVIRONMENTAL PROTECTIONINCOME GENERATIONCOST-EFFECTIVENESSSUSTAINABILITYALLOCATIVE EFFICIENCYENERGY EFFICIENCY

EFFICIENCY: WHAT DOES IT MEAN? SUPPOSE THERE ARE TWO KINDS OF DRILL

BITS THAT MAY BE USED TO DRILL FOR OIL…ONE MADE OF A SPECIAL STEEL ALLOY, THE OTHER OF DIAMONDS. THE HARDNESS OF THE DIAMONDS ALLOWS THE DIAMOND DRILL TO CUT THROUGH 10,000 FEET OF ROCK BEFORE IT HAS TO BE REPLACED. THE STEEL BIT MUST BE REPLACED EVERY 2000 FEET. THE DIAMOND BIT COSTS $2000 WHILE THE STEEL BIT SELLS FOR $300. WHICH DRILL BIT IS MORE EFFICIENT?

AS WITH EVERYTHING IN ECONOMICS: IT DEPENDS!!!

ACTIVITY ONE ANSWERSa) 1, 4, 3b) $540, $440, $360,

$420c) 3 (produces 200

units for the least cost)

Energy efficiency- getting the most miles per gallon

Cost efficiency-producing the greatest yield with fixed inputs

Allocative efficiency-getting the most value from resources

How far down the curve should society choose to goif its goal is allocative efficiency?