Environmental Economics

Report

On

The Relationship of Environment and Economics

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TABLE OF CONTENTS

1. Introduction.........................................................................................................................................3

2. The Environment and Economy...........................................................................................................5

3 The Organization as a System..............................................................................................................6

4 External Macro Environment...............................................................................................................7

4.1 Economic Environment........................................................................................................................7

4.2 Technological Environment.................................................................................................................7

4.3 Political and Legal Environment...........................................................................................................8

4.4 Demographic Environment..................................................................................................................8

4.5 Social / Cultural Environment..............................................................................................................8

4.6 Ecosystem Environment......................................................................................................................8

5 External Microenvironment.................................................................................................................9

5.1 The Market..........................................................................................................................................9

5.2 Suppliers..............................................................................................................................................9

5.3 Marketing Intermediaries..................................................................................................................10

6 Kuznets Curve (U-Curve)....................................................................................................................10

7 Environment and Economic Development........................................................................................11

7.1 Environment as Importance..............................................................................................................12

7.2 Economic Development as Importance.............................................................................................13

8 Need for Sustainable Development...................................................................................................13

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1. Introduction

Generally speaking an environment includes the air we breathe, the water we drink, the available

business, social and educational infrastructure in the locality, state and country etc. The

environment is all the physical, chemical and biological factors external to the human host and

all related behaviors, the existence of which has been earlier to the human race evolution. It is

key constituent of Earth’s ecosystem. The concept of “environment” has evolved since it started

to become a global issue in the early 1970s. Better environment has been a prime concern as

human beings have been contributing much to its degeneration in many ways. When countries

started to join efforts to strike a balance between improving the quality of human life and

protecting the environment for the sake of future generations, a new awareness materialized. The

social and economic welfare of human beings is closely linked to their environment. Any change

in the socioeconomic fields will have an impact on the earth’s environment and vice versa,

whether positively or negatively, immediately or eventually. And in many cases, negative results

are irreversible. The Earth Summit held in Rio in 1992 concluded that the economic, social and

environmental concerns are inescapably interlinked to world development .Hence we must

undertake necessary actions from every level to eliminate environmental problems.

Economy is the study of profit making business. It provides sets of analytical tools that are used

to study any situation in which scarcity requires balancing. It includes the behavior of every sort

of organization. In the context of business the environment refers to the sum of internal and

external forces operating on an organization. The managers must perforce recognize the

elements, severity and impact of these forces on the organization. They must identify, evaluate

and react to the forces triggered by the external environment. More often than not, these forces

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are beyond the control of an organization and its managers. Accordingly, the factors of the

environment will need to be considered as inputs in the planning and forecasting models

developed by an organization. 

Every business venture makes use of collection of Technological, Legal and social arrangements

through which individuals in society seek to increase their material and spiritual well beings. The

basic three function of economy are

a) Production: - There are two types of production processed by organizations namely Product

and Services. It refers all activities that determine the quantity of goods and services that are

produced. Use of raw materials, technology and managerial means are the input for

production to carry out.

b) Distribution:- the produced product and services are being distributed among the individuals

and groups that make up society. Distribution is a key process in every business inorder to

make profit and puts goods and services in the hands of individuals, households, and

organizations.

c) Consumers: - these are final element of business, which makes use of product and services

offered by a business entity. Consumers are the final consumption entity.

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2. The Environment and Economy

Figure 1 as shown below is a model trying to show the essential structure and relationships

between Environment and Economy. It shows the distinct link between major economic entity

and environment.

Figure 1:- Environment and Economy elements

Producer’s entity includes all private firms that take inputs and convert them to outputs. The

primary inputs for Production unit are from the natural environment are in the form of fuels,

nonfuel minerals, wood fluids like water and petroleum and gases of various types like natural

gas and oxygen). All goods and services are derived from materials with the application of

energy inputs. Secondly all products and services produced by production unit are consumed by

consumers. Both entity Producers and Consumers discharge the waste to the environment. Both

producers and consumers are same group of people which different capacity.

According to Roegen and Meadows growing economic activity (production and consumption)

requires larger inputs of energy and material, and generates larger quantities of waste by-

products. Increased extraction of natural resources, accumulation of waste and concentration of

pollutants will therefore overwhelm the carrying capacity of the biosphere and result in the

degradation of environmental quality and a decline in human welfare, despite rising incomes.

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Furthermore, it is argued that degradation of the resource base will eventually put economic

activity itself at risk. To save the environment and even economic activity from itself, economic

growth must cease and the world must make a transition to a steady-state economy.

It is quite possible that some large organizations themselves constitute a greater part of the

business environment. An organization operates within the larger framework of the external

environment that shapes opportunities and poses threats to the organization. The external

environment is a set of complex, rapidly changing and significant interacting institutions and

forces that affect the organization's ability to serve its customers. External forces are not

controlled by an organization, but they may be influenced or affected by that organization. It is

necessary for organizations to understand the environmental conditions because they interact

with strategy decisions. The external environment has a major impact on the determination of

marketing decisions. Successful organizations scan their external environment so that they can

respond profitably to unmet needs and trends in the targeted markets.

3 The Organization as a System

The Organization as a System Internally, an organization can be viewed as a resource conversion

machine that takes inputs (labor, money, materials and equipment) from the external

environment (i.e., the world outside the boundaries of the organization), converts them into

useful products, goods, and services, and makes them available to customers as outputs. The

organization must continuously monitor and adapt to the environment if it is to survive and

prosper. Disturbances in the environment may spell profound threats or new opportunities. The

successful organization will identify, appraise, and respond to the various opportunities and

threats in its environment.

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4 External Macro Environment

The external macro environment consists of all the outside institutions and forces that have an

actual or potential interest or impact on the organization's ability to achieve its objectives:

competitive, economic, technological, political, legal, demographic, cultural, and ecosystem.

Though no controllable, these forces require a response in order to keep positive actions with the

targeted markets. An organization with an environmental management perspective takes

aggressive actions to affect the forces in its marketing environment rather than simply watching

and reacting to it.

4.1 Economic Environment

The economic environment consists of factors that affect consumer purchasing power and

spending patterns. Economic factors include business cycles, inflation, unemployment,

interest rates, and income. Changes in major economic variables have a significant

impact on the marketplace.

4.2 Technological Environment

The technological environment refers to new technologies, which create new product and

market opportunities. Technological developments are the most manageable

uncontrollable force faced by marketers. Organizations need to be aware of new

technologies in order to turn these advances into opportunities and a competitive edge.

Technology has a tremendous effect on life-styles, consumption patterns, and the

economy.

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4.3 Political and Legal Environment

Organizations must operate within a framework of governmental regulation and

legislation. Government relationships with organizations encompass subsidies, tariffs,

import quotas, and deregulation of industries. The political environment includes

governmental and special interest groups that influence and limit various organizations

and individuals in a given society.

4.4 Demographic Environment

Demographics tell marketers who current and potential customers are; where they are;

and how many are likely to buy what the marketer is selling. Demography is the study of

human populations in terms of size, density, location, age, sex, race, occupation, and

other statistics. Changes in the demographic environment can result in significant

opportunities and threats，presenting themselves to the organization.

4.5 Social / Cultural Environment

Social/cultural forces are the most difficult uncontrollable variables to predict. It is

important for marketers to understand and appreciate the cultural values of the

environment in which they operate.

4.6 Ecosystem Environment 

The ecosystem refers to natural systems and its resources that are needed as inputs by

marketers or that are affected by marketing activities. Green marketing or environmental

concern about the physical environment has intensified in recent years. To avoid

shortages in raw materials, organizations can use renewable resources (such as forests)

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and alternatives (such as solar and wind energy) for nonrenewable resources (such as oil

and coal). Organizations can limit their energy usage by increasing efficiency.

5 External Microenvironment

The external microenvironment consists of forces that are part of an organization's marketing

process but are external to the organization. These micro environmental forces include the

organization's market, its producer-suppliers, and its marketing intermediaries. While these are

external, the organization is capable of exerting more influence over these than forces in the

macro environment. 

5.1 The Market

Organizations closely monitor their customer markets in order to adjust to changing tastes

and preferences. A market is people or organizations with wants to satisfy, money to spend,

and the willingness to spend it. Each target market has distinct needs, which need to be

monitored. It is imperative for an organization to know their customers, how to reach them

and when customers' needs change in order to adjust its marketing efforts accordingly. The

market is the focal point for all marketing decisions in an organization. 

5.2 Suppliers

Suppliers are organizations and individuals that provide the resources needed to produce

goods and services. They are critical to an organization's marketing success and an important

link in its value delivery system.

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5.3 Marketing Intermediaries

Like suppliers, marketing intermediaries are an important part of the system used to deliver

value to customers. Marketing intermediaries are independent organizations that aid in the

flow of products from the marketing organization to its markets. The intermediaries between

an organization and its markets constitute a channel of distribution. These include middlemen

(wholesalers and retailers who buy and resell merchandise). Physical distribution firms help

the organization to stock and move products from their points of origin to their destinations.

Warehouses store and protect the goods before they move to the next destination. Marketing

service agencies help the organization target and promote its products and include marketing

research firms, advertising agencies, and media firms. Financial intermediaries help finance

transactions and insure against risks and include banks, credit unions, and insurance

companies.

6 Kuznets Curve (U-Curve)

Figure 2:- Kuznets curve - development-environment relationship

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There are others hypothesis on relationship between economic growth and environmental

quality, whether positive or negative, is not fixed along a country’s development path. It may

change from positive to negative as a country reaches a level of income at which people demand

and afford more efficient infrastructure and a cleaner environment. The implied inverted-U

relationship between environmental degradation and economic growth known as “environmental

Kuznets curve” as shown above. At low levels of development, both the quantity and the

intensity of environmental degradation are limited. As agriculture and resource extraction

intensifies and industrialization takes off, both resource depletion and waste generation

accelerate. At higher levels of development, structural change towards information-based

industries and services, more efficient technologies, and increased demand for environmental

quality result in leveling-off and a steady decline of environmental degradation, as seen in chart.

Increase of environmental degradation with economic growth calls for strict environmental

regulations and even limits on economic growth to ensure a sustainable scale of economic

activity within the ecological life-support system. On the other hand decrease of environmental

degradation along a country’s development path suggests the policies that accelerate economic

growth, leading to rapid economic growth with no environmental policies required. Indeed

naturally this policy is taken if there is a slow economic growth.

7 Environment and Economic Development

On the process of writing this paper i came across various arguments regarding development and

environment protection, its gives me greater concern as development and economy of the

country is equally important. Environment is another important thing that requires our attention.

Underdeveloped and Developing countries are still struggling to overcome poverty of larger

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section of population and empowering them, Whereas developed countries are focusing on

environment protection. As there is a conflict between the environment and the socioeconomic

development, which should be taken with higher importance?

7.1 Environment as Importance

Environment is under tremendous stress because of increasing population pressure on this

planet. It may be disastrous for the entire world if the issues relating to the environmental

protection are overlooked. And when the disasters strike, these do not distinguish between

the affluent and the poor or the developed or the underdeveloped.

Placing more emphasis on the socio-economic development by ignoring the environmental

issues is a short- sighted and short-term approach.

In the overall interest of humanity, it is imperative to give priority to the environmental

issues over the economic development, in case of a clash between the two.

Not limited but following list of additional features which could be added over intranet

leading to effective communication.

Socio-economic development has no meaning if the whole humanity is endangered. The

environmental degradation would not only affect the climate, but also the air and water

quality on this earth, which are essential requirements for sustaining the life.

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7.2 Economic Development as Importance

The environmental issues can come to the fore only after the basic needs like food, clothing

and shelter are met.

The developed nations have exploited the earth and its resources for several decades and

now when the developing nations are growing rapidly, these countries fear that the resources

may actually be stretched and less and less would be left for them on earth. That is why

these countries now talk of the environmental protection.

When we talk of human rights, the primary concern is the dignified and sustainable

livelihood for all, on the one hand, and physiological needs, on the other. Human rights

would be grossly violated if these basic needs of the citizens are not met. The

environmentalists must understand this.

The poor want their government to make suitable arrangements for the bare minimum needs

first. In other words, unless the minimum needs are met, it is useless to talk about the

environmental issues.

8 Need for Sustainable Development

Economic development without environmental considerations can cause serious environmental

damage affecting the quality of life of present and future generations. Sustainable development

attempts to strike a balance between the demands of the economic development and the need for

protection of the environment. It seeks to combine the elements of economic efficiency,

intergenerational equity, social concerns and environmental protection. The term sustainable

development has many interpretations it generally refers to non declining human wellbeing over

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time. Sustainable development meets the needs of present without compromising the ability of

future generations to meet their own needs. The concept of sustainable development aims at

maximizing the net benefits of economic activities over time and providing a social safety net to

meet the basic needs of the poor. Sustainable development, therefore attempts to accelerate

development in an environmentally responsible manner keeping in mind the intergenerational

equity requirements.

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