Thus, the total weight of raw material and energy inputs to economy must be balanced by the total amount of residuals flowing to the environment.
According to the First Law of Thermodynamics (also known as the Law of Conservation of Matters), matters only change in shape, size, or phases, the total weight is conserved.Environmental economics is the study of the flow of residuals (see the box diagram) and its impact in the natural world.During production and consumption processes, residuals are emitted to Nature. Economy uses the resources to produce goods that are then consumed. Nature provides raw materials and energy to the economy.Draw a box diagram to show linkages between Nature and economy.Linkage Between Economy and Environment.Excessive emphasis to market goods in the short run may damage the assimilative capacity of the environment and thus future productive capability of an economy (this shifts the PPF inwards).A short-run choice can affect long-run choices between environmental quality and market goods.Value of environmental quality vis-a-vis market goods may differ among societies according to educational level, income, and information.Values placed by a society on environmental quality and on market goods (the social indifference curve, derived from social welfare function) determine the choice of the society where to locate on the PPF.The more the production of market goods, the lower the environmental quality, given a state of technical know-how.
Production possibility frontier of two goods: market goods and environmental quality (draw a PPF).Trade-off between Market Goods and Environmental Quality.
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