1. Environmental and Natural Resource Economics 3rd ed. Jonathan M
Environmental and Natural Resource Economics 3rd ed. Jonathan M. Harris and Brian Roach Chapter 1 – Changing Perspectives on the Environment
Copyright © 2013 Jonathan M. Harris

2. Figure 1.1: The Standard Circular Flow Model
Flows of Goods and Services
Real Flows
Product Markets
Monetary Flows (counterpart of real flows)
Firms
Households
This closed-loop model does not recognize flows of natural resources and environmental pollutants, except insofar as they are included in the general production factor of “land”.
Factor Markets
Flows of Factors of Production (land, labor, capital)

3. Figure 1.2: A Broader Circular Flow Model
Solar Energy
Waste Heat
Outputs
(pollution and wastes)
Natural Inputs
(flows of natural resources and environmental services)
Ecological Cycles
Goods and Services
Cycle
Factors of Production
Firms
Households
BIOSPHERE
Economic
The ecologically-oriented model has a more complex system of open and closed loops. The economic cycle appears as before, but embedded in a broader system of ecological cycles that have their own internal logic, with solar energy as the one factor that enters the otherwise closed planetary system (referred to by Kenneth Boulding as “Spaceship Earth”), and waste heat as the only flow out of the system.