The economics of: the environment

An economic analysis of our environmental impact

I originally wrote this article for my friend’s blog — it’s posted here.

Most of us are fully aware that we’re damaging our environment and that climate change is happening, even if we’re not acting on this knowledge. It’s shocking though that some people still refuse to acknowledge its lasting impacts. Their behaviour — especially as they hold some of the most powerful positions in the world — is a definite problem, leading to further damage to our planet.

Nevertheless, based on the endless amount of evidence that confirms climate change is indeed putting the earth’s future at risk, I want to look at our environmentally-damaging actions from an economics perspective. I’ll build some simple models that, albeit unrealistically, represent how people think.

These models will help us consider how we can use economics to help tackle the huge problems of environmental damage and climate change.

Profit-seeking and environmental responsibility: Taxes and better behaviour

The traditional profit function is given by:

Profit = Quantity x (Revenues — Costs)