ECONOMICS 380: NATURAL RESOURCES AND ENVIRONMENTAL ECONOMICS TR 12:40-2:00 pm, 160 Heady Hall © 2005 South-Western, part of the Thomson Corporation

2 Instructor: Dr. Catherine L. Kling 568D Heady Hall office hours: W 9-10 a.m., Th 9-10 or by appointment Teaching Assistant:Mr. Min Wang 180A Heady Hall,

3 Class Homepage: 380/kling/ 380/kling/ Text: Kahn, James, The Economic Approach to Environmental and Natural Resource Economics, Third Edition, Thompson South- Western,

4 Grading Three exams will be given in class and a final exam will be given during the normally scheduled final examination time. The best three of these four exams will be used to compute 85% of your grade. The final 15% will be based on occasional homeworks assigned during the semester. Grades will be based on A, B, C, 60-69D, and below 60% F. At the instructor’s discretion, a more lenient curve may be used. Homeworks must be turned in on the assigned date. I do not give make-up examinations.

5 Students with Disabilities Any student who feels s/he may need an accommodation based on the impact of a disability should contact me privately to discuss specific needs. Students with documented disabilities should contact the Disability Resources Office at in room 1076, Student Services Building to coordinate reasonable accommodations.

6 Course Outline: Everything subject to change – it is your responsibility to be aware of changes! January 15 – February 5, Chapters 1-4 February 7, EXAM #1, Coverage includes material discussed since beginning of course February 12 – March 6, Chapters 4-5, Chapters 7-9 March 11, EXAM #2, Coverage includes material discussed since second exam March Spring Break March 13- April 24, Chapters April 29, EXAM #3, Coverage includes material discussed since second exam May 8, FINAL EXAM, 12:00-2:00 p.m., Comprehensive

7 What is Economics? Economics – the study of how to make trade-offs; the science of the allocation of scarce resources. Environmental Economics: the study of trade-offs between environmental services and preservation and other economic and social activities.

8 Trade-offs occur at every geographic scale We are experiencing losses of habitat and the destruction of many renewable resources including:  Many of our most important global fisheries.  Massive losses of tropical forests.  Rapid die-off of coral reefs.  Extensive losses of wetlands.  Conversion of grasslands and other ecosystems to desert at a fast rate.

9 Why Study Environmental and Resource Economics? Study of natural sciences is not sufficient to completely analyze problem because these sciences do not include human behavior. The Economics of the Environment has a number of special features that are not typical of many economic problems:  Optimal allocation of environmental resources has implications for future choice.  Many decisions regarding environmental resources are irreversible.  Market failure is an important characteristic of many environmental issues.  Optimal allocation requires understanding the whole ecological system and how it responds to changes in both ecological and economic systems.

10 Figure 1.2. Interrelationships between systems using acid rain as an example

11 Some Preconceived notions? 1. Optimal amount of all pollutants is zero Not so! Given realities of our ability to produce goods and services, it will often be worthwhile to accept some pollution 2. Economics and profits are the inherent enemy of the environment Not so! If market forces can be harnessed there is potential to use economics to improve the environment 3. Economists consider only goods and services that are bought and sold be have value Not so! Anything people care about has value. The amount of economic value depends on how much they are willing to give up of other goods and services in exchange for the item

12 EXPERIMENT: Market for Modern Art Personal Information Sheets (keep private) Buyer Value Buyer profit = Buyer Value – PRICE Seller Cost Seller profit = PRICE – Seller cost Double Oral Auction  Yell out bids (nicely), I am auctioneer  Bids must increase, offers must sell  Yell out “Take it” or something similar to indicate a deal