Ecological Economics: Basic concepts

Lecture 2
 Eco-friendly Circular Flow Economy

Major implications of
Extended circular economy

The recognition that natural

resources and solar energy provide
the essential input into economic
processes .

the ecological system has its own

circular flow, which is determined
by physical and biological rather
than economic laws. This broader
flow has only one net “input”—solar
energy—and only one net
“output”—waste heat. Everything
else must somehow be recycled or
contained within the planetary
ecosystem.

economic activity is limited by both

the availability of natural resources
Extended Standard Circular Flow based on and the ability of the environment to
Ecological Economics Principles assimilate wastes and pollution.
 Concept of Ecological Economics

❑ The economic system is a subset of the broader ecological

system.

❑ Sustainability should be defined according to ecological,

rather than economic, criteria.

❑ It is essential to rely upon a range of academic disciplines

and perspectives, in addition to economics, to provide
insight into environmental issues
Fundamental Concept

• One fundamental concept emphasized by ecological economists

is “natural capital”.
• Most economic models of the production process focus on two
factors of production: capital and labor
• A third factor, usually referred to as “land,” is acknowledged but
usually has no prominent function in economic models.

Natural capital the available endowment of land and resources, including air,
water, soil, forests, fisheries, minerals, and ecological life-support systems.
Do ecological & environmental
economics different??

Science is still in
progress!!!
Do ecological & environmental economics different??
 On the methodological approach

The existing methods applied in environmental economics are

Environmental Economics

capable of addressing only a very few environmental issues but are

inadequate to incorporate variety of other environmental/ecological
issues. This is because- ignore the natural limits to growth; neglect the
important interdependency between economy and environment; and
downplay the role of time.

In both cases we need

multi-disciplinary approach
Ecological Economics

Where as the ecological economists used multiple methods to

address the above mentioned limitations such as ecological
economist rely on multiple framework such as ecological footprint,
and ecological complexity are constantly used to analyse the
environment–economy interaction.