Economic Systems and the Environment

In any economic system, be it a free market or a command economy, the elementary functions of production, distribution and consumption take place within the natural world. The natural world provides the raw materials and the energy inputs for the production process whereas production and consumption leave “residuals” or waste products which go back into nature. The manner in which the residuals are handled will infact tell us how they may lead to pollution or the degradation of the natural environment. (a) explains nature in its role as a product of raw materials and (b) explains what the impact of residuals is on the natural world. Therefore we can see that environmental economics draws from two angles. Primarily it is the study of waste flow management and secondly, it studies the impacts of human activity on environmental resources. Thus one’s misconception of environmental problems only being constrained to pollution are removed. Infact, environmental economics focuses not only on pollution oriented problems but also looks at issues such as habitat disruption caused by human activities in an economic system. A good example of this is a housing development scheme which will disrupt the natural habitat and at the same time bring an array of problems such as sanitation, house waste disposal, etc. Analysing the environment from the perspective of an economic system we have to establish how this system's working will affect the environment's natural resources, both renewable as well as non- renewable resources. Human activities, within an economic system have substantially increased the rate of species / natural resources extinction. Most of our natural renewable resources are heavily ‘time dependent’. This means that they are spread over time, so why do we cut a tree today? We will have to wait atleast 15- 20 years to replace the tree. But in the case of natural non- renewable resources we can work within the framework of tradeoffs between the present and the future. This means we know that once we use all the petrol reservoirs there is no process for their replenishment. So it is our option to utilise a nonrenewable resource to its maximum given a time span and not necessarily exhaust all the resources at one present period of time but save for the future and coming generations.