Question

1.Give definitions of below terms briefly.

(a) Environmental economics vs engineering economics

(b) Opportunity cost

(c) Externality

(d) Valuation of Environmental resources

(e) Polluter pays / user pays principle

2.Please define and compare the terms “willingness to pay” and “affordability”.

Answer 1

Ans1) a) Environmental economics vs engineering economics

Environmental economics is the part of economics that deals with issue or problems related to environment.It studies the theoretical effects and financial effects of environmental plans and policies on the economy.It objective is to maintain stability between environmental quality and development of economy.

Engineering economics is the sub unit of economics dealing with application or usage of principles of economics for analysis and observing decisions related to engineering.It has relations with other concepts related to cost accounting, statistics and maths.It studies the economics logical structure but attach to it the analytical ability of statistics and maths.

b) Opportunity cost - It is the cost of not choosing the next best option or alternative from the group of options available .When a person has an option to choose from various available choices, then opportunity cost is said to be the cost of the other best alternative not choosen.It is the value of the good the person give up to to select some other good.

c) Externality - It is the benefit or the cost which is created by the producer but it is not monetarily incurred or accepted by that maker or producer.It is that gain or cost which has effect on third-party who even doesn't select to experience that benefit or cost.It can be favorable or unfavourable.Favourable Externality can be when a firm do such activities which diminishes the spread of diseases that pollute the rivers and results in growth of plants. Unfavourable Externality is when a firm give rise to pollution which effects public health.

d) Valuation of environmental resources - It is the effort to add values to the environmental resources in money form. To add monetary value to environmental resources , a complete tool box of techniques for valuation has been developed by economists.It helps to know the relations between benefits from resources and the cost incurred and take decisions accordingly.

e) Polluter pays / user pays principle - It is the principle which says that the person or the party which causes pollution has the liability to carry the cost incurred to manage it and protect the humans and the environment from its effects.It says that the cost of damage to the environment will be borne by the persons who cause it and not by the society or government.