Home | Queries | Feedback | Site Map  

About Us Environmental Economics Legislation Policy Issues Curriculum Publications Literature Database Contact Us




























Abatement :
Is merely the reduction of emissions, so "abatement costs" are the costs of reducing emissions 

Ability-to-Pay Principle : A principle of taxation in which taxes are based on the income or resource-ownership ability of people to pay the tax. The income tax is one of the most common taxes that seeks to abide by the ability-to-pay principle. In theory, the income tax system is set up such that people with greater incomes pay more taxes. Proportional and progressive taxes follow this ability-to-pay principle, while regressive taxes, such as sales taxes and Social Security taxes, don't. 
The logic behind the ability-to-pay principle is that taxes are collected by the government to finance public goods that provide benefits to all members of society. And because taxes are a diversion of resources from the household to the government sector, it makes sense to tax, or divert income away from, the people who actually have the income. 

Absolute Advantage : The ability of a producer to produce a higher absolute quantity of a good with the productive resource available. 

Abundance : A term that applies when individuals can obtain all the goods they want without cost. If a good is abundant, it is free. 

Accelerator :  The causal relationship between changes in consumption and changes in investment. 

Acid Rain : The precipitation of dilute solutions of strong mineral acids, formed by the mixing in the atmosphere of various industrial pollutants - primarily sulfur dioxide and nitrogen oxides -- with naturally occurring oxygen and water vapor. 

Aquifer : Underground source of water 

Acquired Endowments : Resources a country builds for itself, like a network of roads or an educated population 

Adaptive Expectations : Expectations based on the extrapolation of events in the recent past into the future 

Adaptive Management : A general approach to policy-making in the presence of uncertain developments (technology is an example.) It would say that you always need to assess the risks in comparison to the expected benefits. 

Adverse Selection :  Principle that says that those who most want to buy insurance tend to be those most at risk, but charging a high price for insurance (to cover the high risk) will discourage those at less risk from buying insurance at all When a negotiation between two people with asymmetric information restricts the quality of the good traded. This typically happens because the person with more information can negotiate a favorable exchange. This is frequently referred to as the "market for lemons." For example, let's say you're searching for a car, knowing that some are "high-quality" and others are "low-quality." However, you don't know which category a particular car is in. Suppose there's an equal chance of getting either a high-quality or low-quality car. If you're willing to pay $2,000 for a high quality car, but only $1,000 for the low quality car, how much would you offer for a given car of unknown quality? The expected value of the car is $1,500. In other words, if you bought hundreds of cars, half worth $2,000 and half worth $1,000, the average value of the cars is $1,500 each. Not knowing the quality of a given car, the price you would offer is $1,500- the average or expected price. The chance of overpaying for a low-quality car is offset by the chance of underpaying for a high-quality car. Unlike you, each owner is better aware of the quality of his or her car--they have more information than you. Your $1,500 offer would be accepted by the seller of a low-quality car, but refused by the seller of the high-quality car. Due to the lack of buyers' information, high quality cars would not be sold. The only cars exchanged would be low-quality cars ("lemons"). Asymmetric information tends to limit quality of products exchanged, adversely selecting the lower quality cars. 

Aggregate Demand Curve : A curve relating the total demand for the economy's goods and services at each price level, given the level of wages 

Aggregate Expenditures Schedule : A curve that traces out the relationship between expenditures--the sum of consumption, investment, government expenditures, and net exports--and the national income, at a fixed price level 

Aggregate Supply Curve : A curve relating the total supply of the economy's goods and services at each price level, given the level of wages. 

Allocative Efficiency : Obtaining the most consumer satisfaction from available resources . 

Ambient Charge : A form of tax on non uniformly mixed pollutants. It is calculated to be the same in terms of the emission's impact on ambient environmental quality at some receptor site. As a result, an ambient charge to a firm closer to the receptor site will normally be higher per litre than that charged to firms further away. 
The receptor site in the case of BOD waste is sometimes a DO sag. 

Antitrust Laws : Designed to promote open markets by limiting practices that reduce competition. 

Assets : Any item that is long-lived, purchased for the service it renders over its life and for what one will receive when one sells it What a person or business owns. 

Assistance In Kind : Public assistance that provides particular goods and services, like food or medical care, rather than cash 

Asymmetric Information : A situation in which the parties to a transaction have different information, as when the seller or a used car has more information about its quality then the buyer The economics of information search tells us that everyone falls short of having perfect information. It suggests that everyone will have different information about different things. For example, if you aren't a plumber (nor have any desire to become one), then you aren't likely to seek information about the wages paid plumbers in Boise, Idaho. In contrast, this information could be quite beneficial to plumbers in Pocatello, Idaho. Asymmetric Information for the market occurs when buyers and sellers have different information about a good. Sellers often have better information about a good than buyers because they are more familiar with it. They know more about it's quality, durability, and other features. Buyers, in contrast, have limited contact with the commodity and thus have less information. For example, if you sell a car that you've owned for several years, you know how well it's been maintained, whether or not it needs frequent repairs, and what causes that strange "clanking" sound. A buyer who test drives the car for only a few miles is likely unaware of these facts. And because search cost is positive, the buyer is unlikely to acquire as much information about the car as you already possess. Another common example of asymmetric Information is in the labor market. Workers are knowledgeable about their skills, industriousness, and productivity. Employers, in contrast, have limited information about the quality of prospective workers. 

Average Costs : The total costs divided by the total output 

Average Productivity : Total quantity divided by the total quantity of input 

Average Variable Costs : The total variable costs divided by the total output 


Balance of Payments : A record of all the financial transactions between a country and the rest of the world during a given year. 

Barriers To Entry : Factors that prevent firms from entering a market, such as government rules or patents 

Basic Competitive Model : The model of the economy that pulls together the assumptions of self-interested consumers, profit maximizing firms, and perfectly competitive markets 

Benefit-Cost Analysis : The method of evaluating a proposal by comparing the costs and benefits in common units associated with the proposal. The common units are normally dollars. 

Benefits in Kind : Noncash forms of pay or assistance. 

Benefits transfer method : A method of putting dollar values on something (e.g. air quality or risks) by assembling other studies of similar situations and somehow `transferring' the results of the other studies to the situation at hand. 

Bequest Savings Motive : People save so that they can leave an inheritance to their children 

Bequest Values : Willingness to pay to preserve the environment for the benefit of our children and grandchildren 

Bertrand Competition : An oligopoly in which each firm believes that its rivals are committed to keeping their prices fixed and that customers can be lured away by offering lower prices 

Brownfields : Abandoned, idled, or under-used industrial and commercial facilities where expansion or redevelopment is complicated by real or perceived environmental contamination. 

Business Cycles : Periodic swings in the pace of national economic activity, characterized by alternating expansion and contraction phases. 


Capital : The existing stock of productive resources, such as machines and buildings, that have been produced. 

Capital Intensive : Production methods with a high quantity of capital per worker. 

Capital Gain : The increase in the value of an asset between the time it is purchased and the time it is sold 

Capital Market : The market in which savings are made available to investors 

Capitalist Economies : Economies which use market-determined prices to guide peoples choices about the production and distribution of goods; these economies generally have productive resource which are privately owned. 

Carbon Tax : A charge on fossil fuels (coal, oil, natural gas) based on their carbon content. When burned, the carbon in these fuels becomes carbon dioxide in the atmosphere, the chief greenhouse gas. 

Carcinogens : Substances that cause cancer 

Cartel : A group of producers with an agreement to collude in setting prices and output 

Categorical Assistance : Public assistance aimed at a particular category of people, like the elderly or the disabled 

Causation : Relationship that results when an change in one variable is not only correlated with but actually causes the change in another one 

Central Planning : The system in which central government bureaucrats (as opposed to private entrepreneurs or even local government bureaucrats) determine what will be produced an how it will be produced 

Centralization : Organizational structure in which decision making is concentrated at the top 

Centrally Planned Economy : An economy in which most decisions about resource allocation are made by the central government 

CERCLA : Comprehensive Environmental Response, Compensation and Liability Act . U.S. federal law enacted by Congress in 1980 for the purpose of cleaning up existing toxic sites. A.K.A. Superfund. 

Change in Demand : A shift in the entire demand curve so that at any given price, people will want to buy a different amount. A change in demand is caused by some change other than a change in the goods price. 

Change in Quantity Demanded : Movement up or down a given demand curve caused by a change in the goods price with no shift in the curve itself. 

Change in Quantity Supplied : A price change causing movement along the supply curve but no shift in the position of the curve itself. 

Change in Supply : A change in one of the cost determinants of supply causing a shift in the position of the supply curve. Choice : The act of selecting among alternatives, a concept crucial to economics. 

Chlorofluorocarbons (CFCs) : Stable, artificially-created chemical compounds containing carbon, chlorine, fluorine and sometimes hydrogen. Chlorofluorocarbons, used primarily to facilitate cooling in refrigerators and air conditioners, have been found to damage the stratospheric ozone layer which protects the earth and its inhabitants from excessive ultraviolet radiation. 

Citizen suits : Citizens suits are law suits brought by private parties (typically environmental groups or individuals) against polluters for violating pollution regulations. They are often motivated by a desire to reduce the public cost and increase the effectiveness of enforcement. When a polluter is convicted, the polluter is required to pay damages to the party launching the citizen suit in the amount of a reasonable estimate of their costs in investigating and bringing the suit. Note that this is distinct from a purely civil suit where a private party sues a polluter for damages. 

Civilian Labor Force : All persons over the age of sixteen who are not in the armed forces nor institutionalized and who are either employed or unemployed. 

Classical Economists : Economists prevalent before the Great Depression who believed that the basic competitive model provided a good description of the economy and that if short periods of unemployment did occur, market forces would quickly restore the economy to full employment 

Classical Unemployment : Unemployment that results from too-high real wages; it occurs in the supply constrained equilibrium, so that rightwards shifts in aggregate supply reduce the level of unemployment 

Clean Fuel : Fuels which have lower emissions than conventional gasoline and diesel. Refers to alternative fuels as well as to reformulated gasoline and diesel. 

Cleanup : Treatment, remediation, or destruction of contaminated material. 

Clearcutting : A logging technique in which all trees are removed from an area, typically 20 acres or larger, with little regard for long-term forest health. 

Climate Change : A regional change in temperature and weather patterns. Current science indicates a discernible link between climate change over the last century and human activity, specifically the burning of fossil fuels. 

Closed Economy : An economy that neither exports nor imports 

Coase's Theorem : The assertion that if property rights are properly defined, then people will be forced to pay for any negative externalities they impose on others, and market transactions will produced efficient outcomes 

Command and control : This is the policy approach common to many areas of environmental regulation. The essential features of it include: 
Polluters are given highly specific regulations, often including specific technologies to adopt. 
Polluters need to satisfy rigid regulatory requirements often based on ad-hoc judgements of regulators. 
This approach is highly unlikely to be cost-effective unless the regulatory authority knows the MAC curves of all polluters, and designs the regulations accordingly. 

Common Property Resources : Resources for which there are no clearly defined property rights; property owned in common by a society. 

Community Right-to-Know : Public accessibility to information about toxic pollution. 

Compact Fluorescent : Flourescent light bulbs small enough to fit into standard light sockets, which are much more energy-efficient than standard incandescent bulbs. 

Comparative Advantage : The ability of a producer to produce a good at a lower marginal cost than other producers; marginal cost in the sacrifice of some other good compared to the amount of a good obtained. 
a country has an comparative advantage over another in one good as opposed to another good if its relative efficiency in the production of the first good is higher than the other country's 

Compensating Variation : The amount of money one would pay to gain a benefit such as a price decrease or the amount of income one would accept to agree upon the imposition of a harm such as a price increase. Money required to leave an individual as well off as before the economic change. Amount an individual would be willing to pay for the change, or willing to accept as compensation for a change. 

Compensating Wage Differentials : The additional amount paid for a job that has certain unattractive features, such as risk of injury, as compared with a job that requires similar skills but lacks these negative features 

Competition : Rivalry among individuals in order to acquire more of something that is scarce. 

Competitive Equilibrium Price : The price at which the quantity supplied and the quantity demanded are equal to each other 

Complement : A good for which demand decreases when the price of a closely related good increases 

Complements : A price change for one product leads to a shift in the opposite direction in the demand for another product. 

Compliance Costs : For firms, this is the total cost of complying with environmental regulations. In the case of an effluent fee, this is the abatement costs plus the fees to be paid. In the case of permits, it's the abatement cost plus the cost of additional permits acquired (or less the number of permits sold). 

Compost : Process whereby organic wastes, including food wastes, paper, and yard wastes, decompose naturally, resulting in a product rich in minerals and ideal for gardening and farming as a soil conditioners, mulch, resurfacing material, or landfill cover. 

Comprehensive Environmental Response, Compensation and Liability Act : U.S. federal law enacted by Congress in 1980 for the purpose of cleaning up existing toxic sites. A.K.A. Superfund, CERCLA. 

Consumer Price Index (CPI) : A measure of the average amount (price) paid for a market basket of goods and services by a typical U.S. consumer in comparison to the average paid for the same basket in an earlier base year. a price index in which the basket of goods is defined by what a typical consumer purchases 

Consumer Protection Legislation : Laws aimed at protecting consumers, for instance by assuring that consumers have more complete information about items they are considering buying 

Consumer Sovereignty : The principle that holds that each individual is the best judge of what makes him better off 

Consumer Surplus : The difference between what a person would be willing to pay and what he actually has to pay to buy a certain amount of a good 

Consumption Expenditures : The total dollar value of all goods and services purchased by the household sector for current use. 

Consumption Function : A mathematical expression relating personal consumption expenditures to disposable income. the relationship between disposable income and consumption 

Contingency Clauses : Statements within a contract that make the level of payment or the work to be performed conditional upon various factors 

Contingent Valuation Method : Directly asks people what they are willing to pay for a benefit an/or willing to receive in compensation for tolerating a cost through a survey or questionnaire. Personal valuations for increases or decreases in the quantity of some good are obtained contingent upon a hypothetical market. The aim is to elicit valuations or bids which are close to what would be revealed if an actual market existed. Several biases, including strategic, design, (starting point, vehicle, and informational), hypothetical, and operational are discussed above and below. 

Corporate Income Tax : A tax based on the income, or profit, received by a corporation 

Constant Returns To Scale : When all inputs are increased by a certain proportion, output increases by the same proportion 

Correlation : Relationship that results when a change in one variable is consistently associated with a change in another one 

Cost : The most valuable opportunity forsaken when a choice is made. 

Cost-Benefit Analysis : A tally/comparison of expenditures and advantages in dollar terms resulting from various actions. 

Cost-Effectiveness Analysis : A policy is cost-effective if it achieves a given environmental quality target at minimum cost. Equally, the cost effective policy will get the maximum abatement (environmental quality) for a given cost. Thus, cost-effectiveness analysis is the process of choosing the least cost method of attaining a given environmental target. 

Cost-of-Living Adjustments : Automatic adjustments in incomes paid to individual recipients which are tied to the inflation rate, usually measured by the Consumer Price Index. 

Cost minimization condition : In order to minimize cost, the MC of all plants in production must be equalized, and no plant that isn't producing can have a lower marginal cost. (This is a refinement of the simple MC=MC condition.) 

Cournot Competition : An oligopoly in which each firm believes that its rivals are committed to a certain level of production and that rivals will reduce their prices as needed to sell that amount 

Credit Rationing : Credit is rationed when no lender is willing to make a loan to a borrower or the amount lenders are willing to lend to borrowers is limited, even if the borrower is willing to pay more than other borrowers of comparable risk who are getting loans 

Cross Subsidization : The practice of charging higher prices to one group of consumers in order to subsidize lower prices for another group 

Crowding Out : The tendency for federal government, by deficit financing to compete with firms or persons for borrowed funds; that is, firms and households unable to borrow at a low rate of interest curtail their investment and consumption spending. 

Cryptosporidium : A protozoan (single-celled organism) that can infect humans, usually as a result of exposure to contaminated drinking water. 

Cyclical Unemployment : Temporary layoff of workers due to downturns in the pace of economic activity. 


Damage Function : Relationship that shows how pollution damage varies with the level of pollution emitted, and what the monetary value of that damage is. 

Deficit Spending : A term which refers to the situation wherein he government spends more than it receives in taxes. 

Demand : The maximum quantities of some good that people will choose (or buy) at different prices. An identical definition is the relative value of the marginal unit of some good when different quantities of that good are available. 

Demand Curve : A graphic representation of the relationship between prices and the corresponding quantities demanded per time period. the relationship between quantity demanded of a good and the price, whether for an individual or for the market (all individuals) as a whole 

Demand Deposits : Checking accounts in commercial banks. These banks are obliged to pay out funds when depositors write checks on those numbers. Checking accounts are not cash - they are numbers recorded in banks. 

Demand-Pull Inflation : A term used when an increase in aggregate demand occurs which cannot be offset by a corresponding increase in real supply causing an increase in the price level (inflation). 

Demand Site Management : An attempt by utilities to reduce customers' demand for electricity or energy by encouraging efficiency.

Demographic Effects : Effects that arise from changes in characteristics of the population such as age, birthrates, and location 

Deposit/Refund Systems : A surcharge paid when buying potentially polluting products is refunded when the product or container is returned for recycling or proper disposal. Examples include "Bottle bills" deposits on beverage bottles and cans, containerized hazardous or solid waste, such as motor vehicle batteries, oil, and tires, and deposit-refund systems for car batteries. Recycling and environmentally safe disposal increase because the user is "paid" for doing it right. 

Deregulation : The lifting of government regulations to allow the market to function more freely 

DET : Domestic Emissions Trading, the Canadian name for trading in ERC's or tradeable permits. 

Developed Countries : The wealthiest nations in the world, including Western Europe, the United States, Canada, Japan, Australia, and New Zealand 

Dichotomous Choice : Offers respondents to a contingent valuation survey specific dollars and cents choices, for example would you be willing to pay between $10 and $20 per year to improve visibility at the Grand Canyon. Generally these amounts are varied between participants. 

Diminishing Marginal Utility : The principle that says that as an individual consumes more and more of a good, each successive unit increases her utility, or enjoyment, less and less 

Diminishing Relative Value : The principle that if all other factors remain constant, and individuals relative value of a good will decline as more of that good is obtained. Accordingly, the relative value of a good will increase, other factors remaining constant, as an individual gives up more of that good. 

Diminishing Returns : The principle that says as one input increases, with other inputs fixed, the resulting increase in output tends to be smaller and smaller As more and more of a productive resource is added to a given amount to other productive resources, additions to output will eventually diminish other factors, such as technology and the degree of specialization remaining constant. 

Diminishing Returns to Scale : When all inputs are increased by a certain proportion, output increases by a similar proportion 

Dioxin : A man-made chemical by-product formed during the manufacturing of other chemicals and during incineration. Studies show that dioxin is the most potent animal carcinogen ever tested, as well as the cause of severe weight loss, liver problems, kidney problems, birth defects, and death. 

Discount Rate : Degree to which future dollars are discounted relative to current dollars. 
Economic analysis generally assumes that a given unit of benefit or cost matters more if it is experienced now that if it occurs in the future. The degree to which the importance that is attached to gains and losses in the future is known as discounted. The present is more important due to impatience, uncertainty, and the productivity of capital The interest a private bank pays for a loan from the U.S. Federal Reserve System. 

Disequilibrium : The quantity demanded does not equal the quantity supplied at the going price. 

Disinflation : A slowdown in the rate of inflation. 

Disposable Income : The amount of an individuals income that remains after the deduction of income taxes. 

Diversion rate : The share of solid waste diverted from landfill as a percentage of the total waste stream. (Recycling usually achieves about 20%, whereas the wet-dry schemes can achieve 50--80% diversion rates). 

Dividends : Profits of a firm that are distributed to its investors (stockholders). 

Division of Labor : Assigning of specific tasks to workers and productive resources; it is a reflection of economic specialization. 

Durable Goods : Goods that provide a service over a number of years, such as cars, major appliances, and furniture 


Economic Growth : A sustained increase in total output or output per person for an economy over a long period of time. 

Economic Regulations : The control of entry into the market, pricing, the extension of service by established firms and issues of quality control. 

Economic Rents : Payments made to a factor that are in excess of what is required to elicit the supply of that factor 

Economic Specialization : Concentration of activity in a few particular tasks or in producing only a few items. 

Economics : The study of choice and decision-making in a world with limited resources. 

Economies of Scope : What exists when it is less expensive to produce two products together than it would be to produce each one separately 

Efficiency : The allocation of goods to their uses of highest relative value. 

Efficiency Wage : The wage at which total labor costs are minimized 

Efficiency Wage Theory : The theory that paying higher wages (up to a point) lowers total production costs, for instance by leading to a more productive labor force. 

Efficient Markets Theory : The theory that all available information is reflected in the current price of an asset.

Efficient Property Rights Structures : An efficient property rights structure has the following characteristics: 
Universality All resources privately owned Exclusivity Benefits from using the resources accrue only to the owner Transferability Ownership of the resources ("property rights") are transferable Enforceability Property rights are secure from theft or encroachment 

Effluent Fee : A fixed tax rate per unit (litre or kilogram) of emissions. They are also referred to as emission charges or emission taxes. 

Elasticity of Demand : The percentage change in the quantity demanded divided by the percentage change in price. 

Emission Charges : A fixed tax rate per unit (litre or kilogram) of emissions 

Emission Taxes : A fixed tax rate per unit (litre or kilogram) of emissions 

Emission Reduction Credit : An ERC (or Emission Reduction Credit) is effectively the same as a tradeable emission permit. Under Title IV of the US Clean Air Act, ERC's are created when a polluter reduces pollution below their target level. Such ERC's can then be sold to other firms whose emissions exceed their target. 

Entitlements : Government transfer payments made to individuals having certain designated characteristics and circumstances, such as age or need. 

Equilibrium : The amount of output supplied equals the amount demanded. At equilibrium, the market has neither a tendency to rise nor fall but clears at the existing price. 

Equilibrium Price : The price at which the quantity supplied and the quantity demanded are equal to each other 

Equivalent Variation : The amount of money one would accept to forgo a benefit such as a price decrease or the amount of income one would pay to avoid a harm such as a price increase. Money required to leave an individual as well off as after the economic change. Amount an individual would be willing to accept to forgo the change, or willing to pay to avert the change. 

Exchange : The voluntary transfer of rights to use goods. 

Exchange Rate : The price of one currency in terms of another. 

Exchange Value : The purchasing power of a unit of currency for goods and services in the marketplace. 

Exclusion Principle : The owner of a private good may exclude others from use unless they pay. 

Existence Value : Value from knowing environmental goods exist independent of use or option value. If we lose a species in the wild, such as the Bengal tiger, very few of us will have our welfare directly affected by not being able to see it, photograph it or hear it. That "use value" is very small. But many people will lose the option to do that in the future, should they care to. Economists call that "option value." Further, many people around the world derive some benefit just from knowing that Bengal tigers exist in the wild. That is "existence value." 

Externalities : A situation in which an individual or firm takes an action but does not bear all the costs (negative externality) or receive all the benefits(positive externality) 
Costs or benefits that fall on third parties. 


Factor Demand : The amount of an input demanded by a firm, given the price of the input and the quantity of output being produced; an input will be demanded up to the point where the value of the input's marginal product equals the price of the input 

Fiscal Policy : Policies that affect the level of government expenditures and taxes 
Those federal-government expenditure, tax and borrowing decisions that affect the level of national economic activity. 

Fixed Costs : The costs resulting from fixed inputs, sometimes called overhead costs 

Fixed Inputs : Inputs that do not change depending on the quantity of output, at least over the short term 
Inputs that cannot be changed over a given time interval. 

Free Good : A good which is abundant and costless. 

Free Rider : One who receives something without paying. 

Free-Rider Problem : Problem that occurs when someone thinks he may be able to enjoy something without paying for it, and fails to contribute ever a portion of the cost 

Frictional Unemployment : Unemployment due to workers leaving old jobs and seeking new ones. 


Gains of Exchange : The difference between the relative values of a good to the buyer and the seller. How this difference is divided between buyer and seller will depend upon the price of the good. Exchange will not occur unless both the buyer and the seller expect to receive some of this gain. 

GNP Deflator : Measure of the percentage increase in the average price of products in GNP over a certain base year (now 1972) published by the Commerce Department. 

Good : Anything that anyone wants. All options or alternatives are goods. Goods can be tangible or intangible. 

Government Budget Constraint : Total government outlays (the sum of expenditures on goods and services, transfer payments and interest on debt) must equal total revenue (the sum of taxes and U.S. government loans). 

Government Security : A contract of the government promising to pay a lender a fixed rate ofinterest per year and repay the original loan at a fixed future date. 

Government Transfer Payment : Outlays by the government for which no good or service is received in 
the current period. 

Gross National Product (GNP) : The total market value, in terms of current dollars, of all final goods and services produced in the U.S. in one year. 


Hedonic Pricing Approach : Derives values by decomposing market prices into components encompassing environmental and other characteristics through studying property values, wages and other phenomena. The premise of the approach is that the value of an asset depend on the stream of benefits derived, including environmental amenities. 

Hot air : Hot air is the amount by which Russia's Kyoto Protocol target (for 2008-2012) exceeds its probable emissions in 2012 even without any abatement actions. In other words, even if Russia undertook no actions to reduce their GHG emissions, they would still be below their Kyoto Target. Under some proposed trading schemes, the hot air could be traded and might be worth a lot of money. 

Hypothetical Bias : Difference in actual willingness to pay and willingness to pay revealed in a survey arising from the fact that in actual markets purchasers suffer real costs, while in surveys they do not. 


Inelastic Demand : A term used when the percentage change in quantity demanded is smaller than the percentage change in price. 

Indexation : Modifying contracts so that their dollar terms adjust to the inflation rate as measured in an index, such as the consumer price index. 

Inflation : Increase in the overall level of prices over an extended period of time. 

Interest : The annual earnings that are sacrificed when wealth is invested in a given asset or business. The interest sacrificed by investing in a given business is often called the cost of capital. 

Intergenerational Equity : Fairness between generations 

Intrinsic Values : 
Value that resides 'in' something and that is unrelated to human beings altogether. 

Inventory : A stock of goods or resources held by a buyer or seller in order to reduce the cost of exchange or production. 

Investment Expenditures : Dollar expenditures by firms on capital goods (factories, office buildings and others structures, machinery and equipment, inventories and residential housing) used to produce other new goods and services. 

Involuntary Unemployment : Potential workers able and willing to work at the existing market wage rate, are unable to find jobs. 

Irreversibility : IF an asset is not preserved it is likely to be eliminated with little or no chance of regeneration. 


Joint Implementation : This is a method of achieving reductions in CO2 emissions whereby rich countries (which will probably have made binding commitments to cut emissions) can get partial credit for emission reductions projects which are funded by them, but which are undertaken in poor countries. This is now referred to as the Clean Development Mechanism (CDM) to denote respect for developing countries' right to develop. This mechanism is an attempt to make a system of marketable permits more equitable, by recognizing that wealthy countries were the major cause of the CO2 buildup. It also makes carbon reduction more politically possible. It also has the advantage of being more cost effective than trying to achieve emissions reductions solely in the rich countries. 


Labor Intensive Methods : Use of low quantity of capital per worker. 

Labor Productivity : The ratio of real output per unit of labor input; growth is measured by a higher ratio of outputs to inputs. 

Latency : Latency refers to the process by which some diseases develop long after an individual is exposed to the causative agent. Some diseases develop many years after individuals are exposed to toxic chemicals. In such cases, it takes longer testing to prove that a compound is safe. 

Law of Demand : People purchase more of any particular good or service as its relative price falls; they purchase less as its relative price rises. 

Law of Supply : At higher relative prices, the quantity supplied of a good will increase; at lower relative prices, smaller quantities will be supplied. 

Leisure : All uses of time in which ones labor services are not exchanged for money. The uses of everyone's time can be divided between employment and leisure. 

Liabilities : The debts of a person or business. 

Liability law : An approach whereby those injured by damages take the parties responsible for the damage to court. If the suit succeeds, the injured parties are awarded damages. Two key drawbacks to using liability law for environmental damages are the difficulties in linking health damages to a single polluter and determining who has been damaged. 


Macroeconomics : The study of the sum total of economic activity, dealing with the issues of growth, inflation0 and unemployment and with national economic policies relating to these issues. Malthusian Trap : The minimum subsistence level to which humans descend as a result of geometric population growth and arithmetic resource growth. 

Marginal : The additional or extra quantity of something. If one drinks six sodas in a day, the marginal soda would be the sixth soda. 

Marginal Cost : The increase in total costs as one more unit is produced. 

Marginal Productivity : The additional output obtained by adding an additional unit of a productive resource, such as labor. More precisely, marginal productivity is the change in total output divided by the change in the amount of the productive resource employed. marginal productivity = change in total output change in amount of productive resource 

Marginal Propensity to Consume (MPC) : The percentage of new or added income that is consumed. 

Marginal Propensity to Save (MPS) : The percentage of new or added income that is saved. 

Marginal Revenue : The addition to total revenue as one additional unit is produced and sold. 

Marginal Tax Rate : The tax rate charged on the taxpayers last dollar earned; in a progressive tax system the marginal tax rate is always greater than the average tax rate. 

Market : A network in which buyers and sellers interact to exchange goods and services for money. 

Market Clearing Price : A price which rations the supply of a good among competing consumers so that the quantity of the good demanded is equal to the quantity supplied. 

Market Economy : A decentralized system where many buyers and sellers interact. 

Mass Balance Condition : The mass of all the inputs used to produce goods and services (output) must equal the mass of the resulting output(s) plus the mass of the wastes. 

Microeconomics : The study of the individual parts of the economy, the household and the firm, how prices are determined and how prices determine the production, distribution and use of goods and services. 

Minimum Wage : A wage below which employers may not legally pay employees for specific kinds of employment. 

Monopolistic Competition : A market with a large number of firms selling similar but differentiated products with no significant barriers to entry. 

Monopoly : A market with only one supplier. 

Multiplier : The number of times new investment spending will be respent to produce a certain amount of new income. 


NAMEA : The national accounting matrix including environmental accounts developed by the Netherlands and used in their national income accounting reports. It contains figures on environmental burdens related to economic activity as reflected in the national accounts. 

Natural Monopoly : One producer supplying all of the market at lower costs than many producers could. 

Natural Unemployment Rate : An economy's civilian unemployment rate when supply and demand for labor are equal. The natural rate is the percentage of the civilian labor force unemployed at one time or another during any given year multiplied by the average time people spend searching for jobs. 

Need : A specific quantity of a specific good for which an individual would pay any price.

Net Worth : The difference between the assets and liabilities of a person or

New Classical Macroeconomics : See Supply-Side Economics. 

New source bias : New source bias refers to the common practice of requiring new firms to pass stricter performance standards or giving the older firms preferential access to emissions permits, or otherwise discriminating against new sources of pollution. New-source bias can lead to perverse incentives, because older firms (using dirtier technology) may be able to sell their products for less because of their lower compliance costs. Thsi could lead to the situation where the older firms are producing at full capacity while cleaner plants are below capacity. 

No Regrets Strategy : A strategy in response to the threat of climate change. It argues that energy-saving measures should be undertaken immediately to help reduce global warming and climate change. Even if the threat of climate change is not as pronounced as we now fear, the supporters of this strategy say would not need to be any regrets because we would have benefited from saving the energy. Advocates argue that there are significant opportunities for energy savings which are cost-effective already. 

Nominal GNP : GNP measured in current prices (see Real GNP). 

Nominal Interest Rate : The cost inflicted by inflation eroding the value of stored dollars plus the forgone real interest rate; the opportunity cost of holding money. 

Normative Economics : Analysis that contains value judgments, either implicitly or explicitly (see Economics or Positive Economics). 


Oligopoly : A market structure with just a few firms controlling a high percentage of total sales. 

Open Access Resource : An open access resource is one where it is impossible to control the access of individuals who want to use it. Common examples are a fishery, or (in the classic example of the tragedy of the commons) a common pasture. 

Opportunity Cost : The highest-valued sacrifice needed to get a good or service. 

Option : Anything that anyone wants. In economics, options (alternatives) are also called goods. 

Option Value : Potential benefits of the environment not derived from actual use. This expresses the preference or willingness to pay for the preservation of an environment against some probability that the individual will make use of it at some later date. If we lose a species in the wild, such as the Bengal tiger, very few of us will have our welfare directly affected by not being able to see it, photograph it or hear it. That "use value" is very small. But many people will lose the option to do that in the future, should they care to. Economists call that "option value." Further, many people around the world derive some benefit just from knowing that Bengal tigers exist in the wild. That is "existence value." 

Orphan site : An orphan site is a contaminated site where the owners are either bankrupt or cannot be located. It is a large problem in the US and Canada. 

Organization of Petroleum Exporting Countries (OPEC) : A group of nations that produce most of the worlds oil and control most of the worlds oil exports. 


Pareto Optimum : Situation in which it is impossible to make any individual better off without making someone else worse off, where better off means more preferred and worse off means less preferred. Every competitive market equilibrium is a Pareto optimum and every Pareto optimum is a competitive equilibrium if a set of assumptions (e.g. perfect information, absence of externalities, etc.) holds true.

Personal Saving : The difference between household income (after taxes) and consumption expenditures. 

Political Economy : Policies that emphasize the interaction between politics and economics and that have political and economic effects. 

Polluter Pays Principal : The idea that polluters should pay in proportion to their contribution to pollution and resulting damages. Note that some policies which violate the principle (abatement subsidies for example) could still be cost-effective. 

Pollution Fee or Tax : Charge for the amount of waste or pollution. Examples include the BTU tax that was an early casualty in the President's budget bill. Several European nations have air and water pollution charges; Unit pricing for trash pickup, charging by the amount of trash collected (or the size of the container). The charge makes it worthwhile for a producer to cut back, right up to the point where it begins to cost more to reduce pollution than to pay the tax. A system like this also raises money for government, allowing government, if it chooses, to reduce taxes in other areas while collecting the same amount of total revenue. 

Potential Pareto Improvement Criterion : The policy objective that gainers from a policy change (or project) could compensate the losers from the change and still be better off. In particular note that a policy that passes this criterion does not need to include the compensation, the compensation merely has to be possible 

Present Value : Value today of a sum to be paid or collected in the future to buy a good or service. 

Price : The amount of money, or other goods, that you have to give up to buy a good or service. 

Price Ceiling : The upper legal limit on a price. 

Price Elasticity of Demand : A measure of the responsiveness of the quantity demanded of a good to changes in that goods price. 

Price Floor : The lower limit imposed on a products price by a price control law. 

Private Good : A pure private good is one which, when consumed by an individual is unavailable for others to consume. Economists say such a good which is completely excludable. Most goods bought in the store (like some baklava, or a tube for one's bicycle) are like this. 

Production Possibilities Curve : All combinations of the maximum amounts of goods that a society can produce with the available resources and technology. 

Productive Resources : The inputs of labor, natural resources and capital used to generate new goods and services. 

Profits : The excess of income over all costs, including the interest cost of the wealth invested. The net income of a business is not an accurate measure of its profit. 

Property Rights : The conditions of ownership of an asset, the rights to own, use and sell. The right to use or consume something, or trade the right away in return for something else. 

Prospect Theory : States that individual values with respect to gains and losses are in comparison to a reference point. Derived from psychology helps explain some anomalies including differences with respect to willingness to pay and willingness to accept. This contrasts with the economic assumption that individuals maximize utility. What matters is the point from which gains and losses are measured. It also suggests that values for negative deviations from the reference point will be greater than values place on positive deviations. Gains are valued less than losses. Third, the manner in which the gains and losses are to be secured matters a great deal. 

Public Goods : A pure public good is one which, if made available to one person, automatically becomes available to all others in the same amount. There are relatively few pure public goods, but a pretty good example is national defence. 

Pure Competition : A situation where many sellers sell the same product and no seller can set the price. 


Quota : A quantitative restriction on imports. 


Rational Expectations : Market participants intuitively anticipate systemic policy actions and their consequences for the economy; thus, on average, private market forecasts are accurate and planned policy is ineffectual (see New Classical Macroeconomics). 

RCRA (Resource Conservation and Recovery Act) : U.S. federal law originally enacted by Congress in 1976 to prevent the creation of toxic waste dumps by setting standards for the management of hazardous waste. 

Real GNP : The GNP of any year measured in the prices of a base year. Real GNP is nominal GNP adjusted for inflation. 

Real Rate of Interest : The dollar interest rate corrected for inflation; equal to the nominal rate minus the inflation rate. 

Real Wage : Ones wage adjusted for inflation. 

Regressive Taxes : A greater portion of income is taken from those in lower levels than from those in upper income levels. 

Rent Controls : Fixed limits on rents that can be charged to tenants by owners according to a legal restriction. Retained Earnings : Business profits which are held by firms and not paid to the stockholders of the firm; the earnings are usually reinvested by the firms. 

Resource Conservation and Recovery Act (RCRA) : U.S. federal law originally enacted by Congress in 1976 to prevent the creation of toxic waste dumps by setting standards for the management of hazardous waste. 

Revealed preference methods : A method of putting dollar values on something (e.g. air quality or risks) which relies on observing choices people make when in a related setting. Examples are housing studies to determine the value of cleaner air or travel studies to evaluate the value of tourism benefits. 

Revenues : Total gross earnings of a firm before subtracting costs.


Scarce Good : A good which people want more of and which is costly to obtain. 

Scarcity Shortage : A term used when the quantity of a good demanded exceeds the quantity supplied at the existing price. 

Shadow Prices : Unobserved hidden or implicit prices derived through inferences and such methods as Contingent Valuation and Hedonic Pricing. Reflect movements along efficient frontier and tradeoffs between attributes. 

Short Run : The period during which some inputs are fixed and cannot be varied. 

Social Costs : Private costs plus external costs. 

Specialization : The act of producing more of a good than one consumes, the rest of that good being exchanged. 

Stagflation : An economic condition characterized by simultaneous inflation, slow growth and high unemployment. 

Stated preference methods : A method of putting dollar values on something (e.g. air quality or risks) which relies on asking people to reveal their values through some type of survey or questionnaire. 

Starting Point Bias : Because survey interviewers suggest the first bid this can influence the respondents answer and cause the respondent to agree too readily with bids in the vicinity of the initial bid . 

Strategic Bias : Causes survey results to differ from actual willingness to pay because individual have an incentive to not reveal the truth because they can secure a benefit in excess of the costs they have to pay. This arises from the free rider problem. For example, if individuals are told that a service will be provided if the total sum they are willing to pay exceeds the cost of provision and that each will be charged a price according to their maximum willingness to pay then individuals will have an incentive to understate his or her demand. 

Structural Unemployment : Workers without jobs whose skills are no longer suitable for or do not match the types of jobs available. 

Substitutes : Price change for one product leads to a shift in the same direction in the demand for another product. Supply Curve : A graphic representation of the relationship between quantities supplied at each price for a given time period. 

Superfund Law : Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) .U.S. federal law enacted by Congress in 1980 for the purpose of cleaning up existing toxic sites. 

Supply-Side Economics : Focus on the effects of national output potential or supply through reduction of taxes and government regulation for businesses designed to increase productivity and economic growth. 

Surplus : A term used when the quantity of a good supplied exceeds the quantity demanded at the existing price. 

Sustainable Development : A principle which says that a development plan must not compromise the welfare of future generations for the benefit of present generations. The principle can be applied in a number of ways, but they all relate to guaranteeing intergenerational equity (somehow defined). That is, the principle concerns fairness between generations. 


Taking : Argument that government regulations can effectively take away or reduce the right of individuals or firms to use property to maximize their incomes or utilities. 

Tariff : A tax on imports. 

Technology-based emission standard : There is some confusion about this term. Often a TBES merely refers to a technological standard (where firms are required to adopt a given technology). The text uses this definition. 
The term TBES is also used to refer to a performance standard (for example the emissions per kilometre of a car). The standard is, however, based on the performance of a specific technology. These are slightly more flexible than technological standards (which require firms to use a specific technology), and are thus more cost-effective than a technological standard. They are still unlikely to be as cost-effective as an incentive-based approach. 

Technological Change : An advance, usually scientific, that causes an increase in output to occur relative to the quantity of inputs. 

Terms of Trade : The relative prices of goods and services traded in international markets. 

Threshold concept : The threshold concept refers to the idea that the marginal damage costs are essentially zero at low levels of emissions, and then rise dramatically once emissions exceed a certain level (called the threshold). For many pollutants (including a number of conventional pollutants for which the concept has been applied when developing policy) the concept is incorrect. That is to say that damages gradually rise over a wide range of emissions. 

Total daily maximum load (TDML) : The total daily maximum load on a water shed is defined as the total effluent from all sources running into a given stream. In the context of 1999 US EPA rules, states are responsible for regulating the TDML into the water shed. This term has a special significance because it represents a key step forward in water quality protection from the approach that focused almost exclusively on regulating point sources to one that took account of all sources of pollution. 

Trade-Off : The opportunity costs of selecting one alternative rather than another. 

Tradeable Discharge Permit : A permit that allows a certain source to emit a specified volume of some pollutant. (Also called marketable or transferable discharge permits) 

Tradable Permits : The government specifies an overall level of pollution we'll tolerate, then gives each polluter a "permit" for its portion of the total. Firms that keep emissions below their allotted level may sell or lease the surplus to other firms that can use the permits to exceed their original allotment. For example The 1990 Clean Air Act which set up tradeable permits for sulfur dioxide emissions in an effort to reduce acid rain. The approach may save the economy $1 billion a year. Other cases where it can work include water pollution from both point and nonpoint sources and international trading in greenhouse gas permits. If the number of permit holders is very high, the program can be expensive to operate. If the number is very small, some firms could monopolize the market. 

Tragedy of the Commons : The case of a communal pasture area where all individuals are free to graze their livestock. The `tragedy' arises because these `commons' were typically heavily over grazed. 

Travel Cost Method : Derives values by evaluating expenditures of recreators. Travel costs are used s a proxy for price in deriving demand curves for the recreation site. 

Transaction Costs : The full costs of making an exchange. 

Trough : A point in the business cycle corresponding to the end of the slowdown and the beginning of expansion. 


User Benefits : Benefits deriving from the actual use of the environment. Anglers, hunters, boaters, nature walkers, bird watchers, etc. use the environment and derive benefits. 

User Values : Benefits deriving from the actual use of the environment. Anglers, hunters, boaters, nature walkers, bird watchers, etc. use the environment and derive benefits. If we lose a species in the wild, such as the Bengal tiger, very few of us will have our welfare directly affected by not being able to see it, photograph it or hear it. That "use value" is very small. But many people will lose the option to do that in the future, should they care to. Economists call that "option value." Further, many people around the world derive some benefit just from knowing that Bengal tigers exist in the wild. That is "existence value." 


Variable Costs : Costs of a production process that increase or decrease along with changes in level of production, as opposed to fixed costs. 

Vehicle Bias : Difference in actual willingness to pay and willingness to pay revealed in a survey arising from the choice of a payment instrument for a survey. Vehicles include changes in local taxes, entrance fees, surcharges on bills, higher prices, etc. 

Voluntary Export Restraint : Identical to an import quota except that the foreign market agrees voluntarily to limit exports from its county to a market. 


Waste : When the relative value of a good is different from that goods marginal cost of production, waste occurs. Goods or resources are wasted when they are allocated to uses which are not the most valuable. 

Wealth : The value of the existing stock of goods; those goods may be tangible or intangible. 

Wholesale Price Index : A measure of changes in the prices of goods at the wholesale level, particularly those goods sold between businesses. 

Willingness To Accept (WTA) : Minimum amount of money one would accept to forgo some good or to bear some harm. 

Working Poor : Workers earning inadequate income as judged by government-established standards of poverty. 

WTA (Willingness To Accept) : Minimum amount of money one would accept to forgo some good or to bear some harm. 

WTP (Willingness To Pay) : Maximum amount of money one would give up to buy some good.


Site Developed

                     Home | Resource Centres | Newsletter | Conference & Jobs | Tamil ENVISWhat's NewQuiz CornerLinksWho's Who
             Site Developed & Hosted By Madras School of Economics