BIOECONOMICS

BI1201 Introduction to Life Sciences and Technology

School of Life Sciences and Technology
March, 2015

Contents
Background &
Definition

Bioeconomics
vs. Conventional
Economics

Scope

Processes in
Bioeconomy

Trend in
Biobased
Economy

Green Economy

Background
Biobased economy emerged as result of four main phenomena

Internationalization &
globalization

Debut of biotechnology in
global market

Advances in biology
(especially molecular
biology) signal the prospect
of a new generation of
products and services

Environmental catastrophe
(global warming, climate
change, etc.)

Bioeconomy emerged as a transition to a post-petroleum society

Definition
Economy

Bioeconomy

How to fulfill peoples needs &

wants.
- On anykind of resources
utilization.
- It can be from perpetual,
non-renewable and
renewable resources.

How to fulfill peoples needs &

wants on bioresources.
In other word, its to use
bioresources, convert them
into goods & services to fulfill
peoples needs & wants.

OBJECTS OF BIOECONOMY

LANDCSAPE/ECOSYSTEM

WILDLIFE BIORESOURCES

DOMESTICATED BIORESOURCES

BIOPRODUCTS

ECOSYSTEM
Recycle/Recovery

ECONOMY
Bioresources
& EnergyInput

Firms
PRODUCTION

Supply

DISTRIBUTION

Demand

Solar Energy

CONSUMPTION Output

Waste

Consumer

(Energy &
Materials)

Scope & Process in Bioeconomy

Concepts in Bioeconomy Process

Production

Collecting & processing

bioresources & manufacturing
them into bioproducts.

Distribution

Transporting bioresources or
bioproducts from manufactures to
consumers.

Consumption

Purchasing & using the

bioresources/bioproducts.

Concepts in Bioeconomy Process

Supply
&
Demand

Supply is a stock of a resource from which a person or

place can be provided with the necessary amount of that
resource.
Demand is market request on bioresources/bioproducts.
Supply and demand is the amount of a commodity,
bioproduct, or service available and the desire of buyers
for it, considered as factors regulating its price.

Stock &
Flow

Bioeconomy process is a system, so it has stock & flow.

Example of stock: bioresources reserve in ecosystem.
Example on flow: distribution of goods & services.

The Demand Function

An equation representing the demand curve
Qxd = f(Px , PY , M, H,)
Qxd = quantity demand of good X.
Px = price of good X.
PY = price of a substitute good Y.
M = income.
H = any other variable affecting demand

The Supply Function

An equation representing the supply curve:
QxS = f(Px , PR ,W, H,)
QxS = quantity supplied of good X.
Px = price of good X.
PR = price of a related good
W = price of inputs (e.g., wages)
H = other variable affecting supply

Simple Supply and Demand Curve

Price of IceCream Cone

Supply

Equilibrium price

Equilibrium

$2.00

Demand
Equilibrium quantity

10

11

The Equilibrium of Supply and Demand

Quantity of IceCream Cones

Trend in Biobased Economy

For biobased economy emerged mostly caused by advancing
biotechnology, people often confuse to think that bioeconomy is all
about industrial biotechnology.
Yet, as the environmental catastrophe increases the awareness
of human being on environmental issues, there are another paradigms
in biobased economy which are being trend nowaday. The
environmental and ecological economics. They are part of the green
economy.

BIOTECHNOLOGY BASED ECONOMICS

ENVIRONMENTAL ECONOMICS
ECOLOGICAL ECONOMICS

Paradigms in Green Economy

Environmental Economics

Ecological Economics

It uses neoclassical economics

mainstream methodology to
investigate the connections
between the socio-economic
system and the environment.

It uses the holistic approach in

ecological, economical and
social methodology to
investigate the connections
between the socio-economic
system and the environment.

Issues on Green Economy:

Ecosystem Services
Tragedy of the Commons
Externalities

Valuation on Bioresources
Green Production & Consumption
Ecological Footprint

Bioresources for Goods & Services

GOODS

SERVICES

Tangible items purchased to fulfill

needs & wants

Intangible tasks performed in

exchange of something of value,
such as money

As bioresources are contained in environment or ecosystem, then

emerged a specific term of Ecosystem Services

Ecosystem services are benefits for human being from

processes or structure within ecosystems that give raise to a
range of goods and services

the products obtained from

ecosystems

GOODS

the benefits obtained from the

regulation of ecosystem
processes
SERVICES
Services needed
for the production
of all other
ecosystem services

the nonmaterial benefits people

obtain from ecosystems through
spiritual enrichment, cognitive
development, reflection,
recreation, and aesthetic
experiences

SERVICES

Tragedy of the Commons

Held in common means the resource is owned by
no one or owned by a group, a.k.a. all have access
to the resources.

Common Resources
1. Air! No one owns the air-avail to all
2. Water in oceans & rivers is avail to all.
3. Fish of the sea avail to all.
Note: First codified by Romans in 535 AD.

Tragedy of the Commons

+

+
+

Tragedy of the commons

is a dilemma arising from
the situation in which
multiple individuals,
acting independently
and rationally consulting
their own self-interest,
will ultimately deplete a
shared limited resource
even when it is clear that
it is not in anyone's longterm interest for this to
happen.

Externalities
When one persons
actions imposes a cost
or benefit on the wellbeing of a bystander.

It can be positive (e.g.:

research) or negative
(e.g.: pollution).

Negative externality of water pollution

Externalities cause
markets to allocate
resources inefficiently
and usually result in
market failure.
Positive externality of research

Environmental Externalities
Environmental
externalities mostly
happened caused by the
negative externalities in
production.
Because of the
externality, the cost to
society is larger than the
cost to producers.
The market overproduces
and charges a price that
is too low.

MSC

PR
IC
E

S = MPC to Firm

D = MB to Society

QUANTITY

MC is the private cost to the firm.

Marginal social cost (MSC) is cost to society =

MC + externality

Valuation on Bioresources
Market failures by externalities & tragedy of the commons
are examples on how important is to value the
bioresources & environment as whole.

Environmental valuation is measurement of both the value

of environmental resources (including bioresources) and
the value of changes in the level of environmental quality.
This is essential information when comparing the benefits
of environmental policy against the costs of obtaining
those benefits.

Mindset in Valuation

Information &
Incentives

Decision-Making
Human actions

Value of ecosystem
services

Economic valuation
methods

Ecosystems

Ecosystem services

Ecological production
function

Valuation Methods
Preferences

Revealed Preferences

Market-Based

Factor of
Production

Producer/
Consumer
Surplus

Stated Preferences

Surrogate Markets

Defensive
Expenditures

Hedonic
Pricing

Non-Market Based

Travel
Cost

Contingent
Valuation

Choices
Experiment

Green Production & Consumption

Ecological Footprint
Area of land required to provide all needs and to
absorb all the waste generated from activities of a
population (Wackernagel and Rees, 1995).

Components

1. Growing Crops
2. Grazing Animals
3. Harvesting
Timber
4. Catching Fish
5. Accommodating
Infrastructure
6. Absorbing Carbon
Dioxide Emissions

National Footprints

In U.S. each person uses about 9.7 ha/person

Worldwide average = 2 hectares/person
Therefore if everybody were to adopt the U.S.
consumptive style, we would need 5 planets.

Mid-test!!!
The mid-test will be held at Friday, March 20th, 2015
Test Rooms:
Engineering Class in 9020 (odd student number) and 9021
(even student number)
Science Class in 9232

Materials
Introduction till Biomanagement
Documentary Film: 11th Hour

Please prepare yourself. Should you require further

information or clarification, do not hesitate to contact
me via e-mail to arni@sith.itb.ac.id.

Make sure you come to the right room!!!