Question

Define the following terms and explain their importance to the study of economics.
a. Greenhouse gases

b. Externality

c. Emissions permits

d. Known reserves

Answer 1

A. Greenhouse gases- These are gases which specifically have a property that they absorb infrared radiation- meaning that they capture the heat coming from the sun in our atmosphere very effectively. That results in our atmosphere heating very rapidly. Examples include Carbon DiOxide and Methane.

These are important in study of economics because they affect not only the cost factors and output, they also affect people and planet negatively- hence reducing overall utility, Their negative effect on utility must be kept in mind when producing a product that has these as by-product.

B. Externality- An externality is the impact, positive or negative, of an economic activity- be in production of a product or consumption of it. An example of negative externality is the noise from vehicles plying on the road- as this noise affects people living nearly. The people are not taking part in the activity and are still getting affected, hence externality.

These are very important in economics because these are hidden costs (if negative extrenality) or benefits (if positive externality) of any product or consumption, and hence must be kept in mind while making any decision with regards to that particular product.

C. Emission permits- Emission permits are permits that are given to companies that produce products that pollute the surroundings via emissions. These permits allow the firm to produce a limited quantity of emissions, as defined by the permit.

These are important in the study of economics because they are considered a better way of reducing pollution as compared to direct taxes or strict limits. These allow companies to trade the permits in between themselves for the highest reduction in pollution at lowest possible costs.

D. Known reserves are the total known fossil fuel reserves of a country. These may not be reachable or extractable right now, but are known to be present and hence can also be called total capacity of the country.

These are important because they give us an idea about the total fossil fuels available, and at what point the country can start extracting them, based on cost and total amount available. They also tell us how we can plan for a future with or without fossil fuels as we know how much fossil fuel is left.