Climate Change And A Loss Of Biodiversity

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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.…show more content…
So if the free market doesn’t price these externalities properly and if too much of the good is produced at a low price this will lead to the market failing. The tragedy of the commons helps us to see how an undesirable outcome can occur. Commons are a common thing, area or resources that can be shared with no limit/regulation. If we imagine a few polluting firms, the utility gained from polluting an extra unit will be positive (+1) for the polluter and negative (-1) for the rest, this negative utility is shared by all of them. The utility gained from polluting instead of investing in reducing pollution is greater than the utility lost. The rational firm will therefore see that the utility maximising thing to do would be to pollute an extra unit. All firms will be thinking in this way and will all increase pollution by a unit and by another and this is said to be a tragedy. Each man is in a position that coerces him to, without limit, increase his pollution in a world that is limited (Hardin, 1968). The tragedy of commons tells us that when there is no regulation and no clear ownership of a resource the resource will be used up without limit as each man will find that their gain in utility from an activity will be greater than the loss. In terms of the environment energy resources, clean air and water are all resources that belong to nobody and everybody. This
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