The environment, both biological and physical, is the source of all natural resources. Some natural resources are renewable (e.g., water, biological resources) while others are non renewable (e.g., geological deposits). The interlinkages between the economy and the environment are summarized in the figure. The economy consists of two sectors: Producers and Consumers, exchange of goods, services and factors of production (Labour and Capital) take place between the two sectors. The environment is shown in two ways: as the three interlinked circles E1, E2 and E3 , and the all encompassing boundary labeled E4 .The production sector extracts energy resources (such as oil) and material resources (such as iron ore) from the environment, these are transformed into outputs through the production process, these transformation processes also generate wastes at different stages and often the environment is used as a repository (Sink) for waste products. There is some recycling of resources within the production sector, shown by the loop R1, and within the consumption sector, as shown by the loop R2.
As we can see the environment’s first role is as a supplier of resources. Secondly it acts as a sink or a receptor for waste products. These wastes may result directly from production, as already mentioned or from consumption. When an individual puts out their garbage, or when they drive to work, they are contributing to this form of waste. Finally the environment also serves as an amenity these include scenic beauty, recreation and other aesthetic values offered by the environment.