Climate Change And A Loss Of Biodiversity

3153 Words Dec 18th, 2014 13 Pages
The environment is important globally, in our everyday lives and also to the economic system. With society constantly using the environments resources, as a supplier of natural resources, a stock of raw materials and a supplier of environmental or amenity goods, a main concern for policy makers is how to make sure we maintain sustainable development in pursuit of economic growth (Collier, 2014). The environment has been part of policy over the past few decades and the major concerns for the environment stem from population growth, resource depletion, climate change and a loss of biodiversity. Following these main concerns two main problems arise in terms of the environment and these are externalities and the tragedy of the commons.

Climate change is the cost of economic activity and is also a concern that gives rise to the problem of negative externalities. Managing resources that belong to nobody, or everybody, are very hard to protect and market failure can occur when the free market allocates goods and services inefficiently and this can give rise to an undesirable outcome. An example of an undesirable outcome is a negative externality and this occurs when production and/or consumption leads to spill over costs on third parties. With a negative externality the social cost is higher than the private cost and this leads to an inefficient output. From a social welfare point of view we would want less output from activities that cause pollution but when there are external…
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