LAND , NATURAL

RESOURCES AND
THE
ENVIRONMENT
Chapter 14
The economy of natural resource

■ When markets do not capture all the costs and

benefits of using natural resources, and externalities
are therefore present, markets give the wrong signals
and prices are distorted. Markets generally produce
too much of goods that generate negative externalities and too little of goods that
produce positive
externalities
appropriable

when firms or consumers can capture its full economic

value. Appropriable natural resources include land
(whose fertility can be captured by the farmer who
sells wheat or wine produced on the land), mineral
resources like oil and gas (where the owner can sell
the value of the mineral deposit), and trees (where
the owner can sell the land or the trees to the highest
bidder). In a well-functioning competitive market,
appropriable natural resources would be efficiently
priced and allocated
inappropriable

■
when some of the costs and benefits associated with
its use do not accrue to its owner. In other words,
inappropriable resources are ones involving externalities. (Recall that externalities are
those activities in
which production or consumption imposes uncompensated costs or benefits on other
parties.)
RESOURCE CATEGORIES

■ FIXED LAND AND RENTS

Rent as Return to Fixed Factors
Taxing Land
■ Market equilibrium
ENVIRONMENTAL
ECONOMICS

Public vs. Private Goods

Public goods are ones whose benefits are indivisibly spread among the entire community,
whether
or not individuals desire to consume the public
good. Private goods, by contrast, are ones that can
be divided up and provided separately to different
individuals, with no external benefits or costs to others. Efficient provision of public goods
often requires
government action, while private goods can be efficiently allocated by private markets.
Socially Efficient Pollution

■ Valuing Damages
■ Graphical Analysis of Pollution
EXTERNALITIES

■ MARKET INEFFICIENCY WITH

EXTERNALITIES
Analysis of Inefficiency

■ POLICIES TO CORRECT
EXTERNALITIE s