Topic 4: Market Systems: Supply and Demand

Previously, I was sharing my assignments with you for my uni subject Environmental and Ecological Economics for Sustainable Development. I have been so busy that I have only just realised that I haven’t shared any assessment items with you guys for quite some time. I will rectify this situation over the next few days. Id love your feedback, so please feel free to leave me a comment!

4A 200-word summary on ‘Can the market work effectively as a way of managing the environment? Justify your answer’.

Previously, we discussed the fundamentals of the ecological economic system (EES). The EES arose throughout the 1980’s and recognised that the environment supports the economy and that the two systems are intrinsically linked (Costanza et al., 1997). Raw environmental materials were viewed as capital depletion within this system; once a strand of timber is harvested, it cannot be harvested again and the services it provided are lost. The model acknowledges that environmental resources are restricted to the confines of what is ecologically possible (Asafu-Adjaye, 2009; Sullivan, 2012a). It also identified that the environment sometimes provides resources in limited quantities (Sullivan, 2012a) and these scarce resource attract a high value (Sullivan, 2012b).

In theory, this model should work perfectly in managing the environmental goods &/or services (EGAS) in a more sustainable method than current management attempts. When the market values something highly, policy makers are more likely to design legislations around their acquisition, use and protection (Costanza et al., 1997).  The problem lies, however, in the difficulties in policing the system. Perhaps this difficult in implementation and management is why this system is not used on a wide spread scale.

Figure 1 Managing the Environment must become a stronger economic issue for policy makers to take notice. Cartoon Source: (Batiuk, Unknown)

4B(i) In less than 80 words: Why is the theory of demand and supply relevant in environmental management?

 All resources required for society’s needs are ultimately supplied by nature, making it is important to determine their value (Costanza et al., 1997; McTaggart et al., 2003; Asafu-Adjaye, 2009; Sullivan, 2012a). When values are high, policy makers design legislations around their acquisition, use and protection (Costanza et al., 1970). The more scarce a resource is, the higher the value which often influences market price (Farmer, 2010). When price is inflated alternatives are sort reducing the demand of the scarce resources. When coupled with legislation restrictions, reduced demand and the availability of alternatives aid managers in environmental management.

4B(ii) In less than 80 words: What are the effects of increasing indirect taxes (e.g. GST) on demand, supply and price?

As taxes increase:

• Price increases as the tax is passed on to the consumer
• Demand decreases as elastic consumerism abstains from purchases and
• Supply decreases to match the contracting market. This leaves an immediate oversupply of goods which may be slowly sold off (Sullivan, 2012c).

While this is the theory of this weeks’ topic, this may not have been factual in Australia throughout the GST’s implementation. While initial consumerism dropped, and Australia experienced its first negative economic growth, it recovered quickly (O’Brien, 2001).

Figure 3 “In the end, the wisdom and the national benefit of this terrific taxation reform will break through and there will be sun all around us,” the PM John Howard said. Cartoon Source: (Hook, 2000).

4B(iii) In less than 80 words: If we are living in a market system, how can we incorporate the environment more effectively?

Hypothetically: Micro economists may encourage governments to imply a tariff (eg: a green tax) on a certain scarce goods and services. The increased price may affect demands as elastic needs are affected by the contracting market (Sullivan, 2012c).

Practice: Unpopular taxes and controversial system changes rarely get governments re-elected. Despite the urgency, the policy makers are slow to respond.

Figure 4 the roller coaster ride: Higher taxes and tarriffs increase price, making it more unobtainable for the low income families. Image Source: (Rank, Unknown)

Reference

Asafu-Adjaye, J. (2009). Environmental economics for non economists: techniques and policies for sustainable development. (2nd ed.). Singapore: World Scientific Publishing Co. Pty. Ltd.

Batiuk, T. (Unknown). Cartoon of the Day.

Costanza, R., Cumberland, J., Daly, H., Goodland, R., & Norgaard, R. (1997). An introduction to Ecological Economics. Boca Raton, Florida: CRC Press.

Costanza, R., d’Arge, R., de Groot, R., Farber, S., Grasso, M., Hannon, B., . . . van den Belt, M. (1970). The value of the world’s ecosystem services and natural capital. Nature, 387, 253 – 260.

Farmer, R. (Producer). (2010, 21 February 2012). How Economy Works. [Video Lecture] Retrieved 21 February 2012 http://www.youtube.com/watch?v=mXxp4WO4cTw

Hook, G. J. (2000). Trust me on GST – Howard. Melbourne, Victoria: Herald Sun.

McTaggart, D., Findlay, C., & Parkin, M. (2003). Economics (4th ed.). Sydney, New South Wales: Pearson Education Australia Pty Ltd.

O’Brien, K. (Writer). (2001). Labor says GST has ‘king hit’ the economy [Transcript of TV Episode], ABC 7.30 Report. Australia.

Rank, J. (Unknown). Economy Cartoon. .

Sullivan, C. A. (2012a, 28 February). [Topic 2  Lecture: Ecological or Environmental Economics?].

Sullivan, C. A. (2012b, 6 March). [Topic 3  Lecture: Enviromental Valuation].

Sullivan, C. A. (2012c, 13 March). [Topic 4  Lecture: Market Systems: Supply and Demand].

Turtle Love Co (2012). White Topaz Engagement Ring  Retrieved 19 March, 2012, from http://www.turtleloveco.com/White_Topaz_Engagement_Ring_p/lg-wts-r.htm

Related articles

• Topic 1: The economy and why it matters to the environment (envirorhi.wordpress.com)
• Topic 2: Environmental vs Ecological Economics (envirorhi.wordpress.com)
• Topic 3: Valuing the Environment: Why it is important.  (envirorhi.wordpress.com)
• Topic 4: Market Systems: Supply and Demand (envirorhi.wordpress.com)
• Topic 5: Decision Making for Environmental Management (envirorhi.wordpress.com)
• Topic 6: Economic instruments for environmental management (envirorhi.wordpress.com)
• Topic 7: Ecosystem good and services (envirorhi.wordpress.com)
• Topic 8: Environmental Growth and Sustainable Development  (envirorhi.wordpress.com)
• Topic 9: Managing Natural Resource Based Industries  (envirorhi.wordpress.com)
• Topic 10: The Economics of Water Management  (envirorhi.wordpress.com)

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