Environmental Economics

Report
On
The Relationship of Environment
and Economics

TABLE OF CONTENTS
1.

Introduction.......................................................................................................... 3

2.

The Environment and Economy........................................................................... 5

The Organization as a System..............................................................................6

External Macro Environment................................................................................ 7

4.1 Economic Environment........................................................................................ 7

4.2 Technological Environment................................................................................... 7
4.3 Political and Legal Environment...........................................................................8
4.4 Demographic Environment...................................................................................8
4.5 Social / Cultural Environment...............................................................................8
4.6 Ecosystem Environment....................................................................................... 8
5

External Microenvironment..................................................................................9

5.1 The Market........................................................................................................... 9

5.2 Suppliers.............................................................................................................. 9
5.3 Marketing Intermediaries................................................................................... 10
6

Kuznets Curve (U-Curve).................................................................................... 10

Environment and Economic Development.........................................................11

7.1 Environment as Importance............................................................................... 12

7.2 Economic Development as Importance..............................................................13
8

Need for Sustainable Development....................................................................13

1. Introduction
2

Generally speaking an environment includes the air we breathe, the water we drink, the available
business, social and educational infrastructure in the locality, state and country etc. The
environment is all the physical, chemical and biological factors external to the human host and
all related behaviors, the existence of which has been earlier to the human race evolution. It is
key constituent of Earths ecosystem. The concept of environment has evolved since it started
to become a global issue in the early 1970s. Better environment has been a prime concern as
human beings have been contributing much to its degeneration in many ways. When countries
started to join efforts to strike a balance between improving the quality of human life and
protecting the environment for the sake of future generations, a new awareness materialized. The
social and economic welfare of human beings is closely linked to their environment. Any change
in the socioeconomic fields will have an impact on the earths environment and vice versa,
whether positively or negatively, immediately or eventually. And in many cases, negative results
are irreversible. The Earth Summit held in Rio in 1992 concluded that the economic, social and
environmental concerns are inescapably interlinked to world development .Hence we must
undertake necessary actions from every level to eliminate environmental problems.
Economy is the study of profit making business. It provides sets of analytical tools that are used
to study any situation in which scarcity requires balancing. It includes the behavior of every sort
of organization. In the context of business the environment refers to the sum of internal and
external forces operating on an organization. The managers must perforce recognize the
elements, severity and impact of these forces on the organization. They must identify, evaluate
and react to the forces triggered by the external environment. More often than not, these forces
are beyond the control of an organization and its managers. Accordingly, the factors of the

environment will need to be considered as inputs in the planning and forecasting models
developed by an organization.
Every business venture makes use of collection of Technological, Legal and social arrangements
through which individuals in society seek to increase their material and spiritual well beings. The
basic three function of economy are
a) Production: - There are two types of production processed by organizations namely Product
and Services. It refers all activities that determine the quantity of goods and services that are
produced. Use of raw materials, technology and managerial means are the input for
production to carry out.
b) Distribution:- the produced product and services are being distributed among the individuals
and groups that make up society. Distribution is a key process in every business inorder to
make profit and puts goods and services in the hands of individuals, households, and
organizations.
c) Consumers: - these are final element of business, which makes use of product and services
offered by a business entity. Consumers are the final consumption entity.

2. The Environment and Economy

4

Figure 1 as shown below is a model trying to show the essential structure and relationships
between Environment and Economy. It shows the distinct link between major economic entity
and environment.

Figure 1:- Environment and Economy elements

Producers entity includes all private firms that take inputs and convert them to outputs. The
primary inputs for Production unit are from the natural environment are in the form of fuels,
nonfuel minerals, wood fluids like water and petroleum and gases of various types like natural
gas and oxygen). All goods and services are derived from materials with the application of
energy inputs. Secondly all products and services produced by production unit are consumed by
consumers. Both entity Producers and Consumers discharge the waste to the environment. Both
producers and consumers are same group of people which different capacity.
According to Roegen and Meadows growing economic activity (production and consumption)
requires larger inputs of energy and material, and generates larger quantities of waste byproducts. Increased extraction of natural resources, accumulation of waste and concentration of
pollutants will therefore overwhelm the carrying capacity of the biosphere and result in the
degradation of environmental quality and a decline in human welfare, despite rising incomes.
Furthermore, it is argued that degradation of the resource base will eventually put economic

activity itself at risk. To save the environment and even economic activity from itself, economic
growth must cease and the world must make a transition to a steady-state economy.
It is quite possible that some large organizations themselves constitute a greater part of the
business environment. An organization operates within the larger framework of the external
environment that shapes opportunities and poses threats to the organization. The external
environment is a set of complex, rapidly changing and significant interacting institutions and
forces that affect the organization's ability to serve its customers. External forces are not
controlled by an organization, but they may be influenced or affected by that organization. It is
necessary for organizations to understand the environmental conditions because they interact
with strategy decisions. The external environment has a major impact on the determination of
marketing decisions. Successful organizations scan their external environment so that they can
respond profitably to unmet needs and trends in the targeted markets.
3

The Organization as a System

The Organization as a System Internally, an organization can be viewed as a resource conversion

machine that takes inputs (labor, money, materials and equipment) from the external environment
(i.e., the world outside the boundaries of the organization), converts them into useful products,
goods, and services, and makes them available to customers as outputs. The organization must
continuously monitor and adapt to the environment if it is to survive and prosper. Disturbances in
the environment may spell profound threats or new opportunities. The successful organization
will identify, appraise, and respond to the various opportunities and threats in its environment.
4

External Macro Environment

The external macro environment consists of all the outside institutions and forces that have an
actual or potential interest or impact on the organization's ability to achieve its objectives:
competitive, economic, technological, political, legal, demographic, cultural, and ecosystem.
Though no controllable, these forces require a response in order to keep positive actions with the
targeted markets. An organization with an environmental management perspective takes
aggressive actions to affect the forces in its marketing environment rather than simply watching
and reacting to it.
4.1 Economic Environment
The economic environment consists of factors that affect consumer purchasing power and
spending patterns. Economic factors include business cycles, inflation, unemployment,
interest rates, and income. Changes in major economic variables have a significant
impact on the marketplace.
4.2 Technological Environment
The technological environment refers to new technologies, which create new product and
market

opportunities.

Technological

developments

are

the

most

manageable

uncontrollable force faced by marketers. Organizations need to be aware of new

technologies in order to turn these advances into opportunities and a competitive edge.
Technology has a tremendous effect on life-styles, consumption patterns, and the
economy.

4.3 Political and Legal Environment

Organizations must operate within a framework of governmental regulation and

legislation. Government relationships with organizations encompass subsidies, tariffs,
import quotas, and deregulation of industries. The political environment includes
governmental and special interest groups that influence and limit various organizations
and individuals in a given society.
4.4 Demographic Environment
Demographics tell marketers who current and potential customers are; where they are;
and how many are likely to buy what the marketer is selling. Demography is the study of
human populations in terms of size, density, location, age, sex, race, occupation, and
other statistics. Changes in the demographic environment can result in significant
opportunities and threatspresenting themselves to the organization.
4.5 Social / Cultural Environment
Social/cultural forces are the most difficult uncontrollable variables to predict. It is
important for marketers to understand and appreciate the cultural values of the
environment in which they operate.
4.6 Ecosystem Environment
The ecosystem refers to natural systems and its resources that are needed as inputs by
marketers or that are affected by marketing activities. Green marketing or environmental
concern about the physical environment has intensified in recent years. To avoid
shortages in raw materials, organizations can use renewable resources (such as forests)
and alternatives (such as solar and wind energy) for nonrenewable resources (such as oil
and coal). Organizations can limit their energy usage by increasing efficiency.
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External Microenvironment

The external microenvironment consists of forces that are part of an organization's marketing
process but are external to the organization. These micro environmental forces include the
organization's market, its producer-suppliers, and its marketing intermediaries. While these are
external, the organization is capable of exerting more influence over these than forces in the
macro environment.

5.1 The Market

Organizations closely monitor their customer markets in order to adjust to changing tastes
and preferences. A market is people or organizations with wants to satisfy, money to spend,
and the willingness to spend it. Each target market has distinct needs, which need to be
monitored. It is imperative for an organization to know their customers, how to reach them
and when customers' needs change in order to adjust its marketing efforts accordingly. The
market is the focal point for all marketing decisions in an organization.
5.2 Suppliers
Suppliers are organizations and individuals that provide the resources needed to produce
goods and services. They are critical to an organization's marketing success and an important
link in its value delivery system.

5.3 Marketing Intermediaries

Like suppliers, marketing intermediaries are an important part of the system used to deliver
value to customers. Marketing intermediaries are independent organizations that aid in the
flow of products from the marketing organization to its markets. The intermediaries between
an organization and its markets constitute a channel of distribution. These include middlemen
(wholesalers and retailers who buy and resell merchandise). Physical distribution firms help
the organization to stock and move products from their points of origin to their destinations.
Warehouses store and protect the goods before they move to the next destination. Marketing
service agencies help the organization target and promote its products and include marketing
research firms, advertising agencies, and media firms. Financial intermediaries help finance
transactions and insure against risks and include banks, credit unions, and insurance
companies.
6

Kuznets Curve (U-Curve)

Figure 2:- Kuznets curve - development-environment relationship

There are others hypothesis on relationship between economic growth and environmental quality,
whether positive or negative, is not fixed along a countrys development path. It may change
from positive to negative as a country reaches a level of income at which people demand and
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afford more efficient infrastructure and a cleaner environment. The implied inverted-U
relationship between environmental degradation and economic growth known as environmental
Kuznets curve as shown above. At low levels of development, both the quantity and the
intensity of environmental degradation are limited. As agriculture and resource extraction
intensifies and industrialization takes off, both resource depletion and waste generation
accelerate. At higher levels of development, structural change towards information-based
industries and services, more efficient technologies, and increased demand for environmental
quality result in leveling-off and a steady decline of environmental degradation, as seen in chart.
Increase of environmental degradation with economic growth calls for strict environmental
regulations and even limits on economic growth to ensure a sustainable scale of economic
activity within the ecological life-support system. On the other hand decrease of environmental
degradation along a countrys development path suggests the policies that accelerate economic
growth, leading to rapid economic growth with no environmental policies required. Indeed
naturally this policy is taken if there is a slow economic growth.
7

Environment and Economic Development

On the process of writing this paper i came across various arguments regarding development and
environment protection, its gives me greater concern as development and economy of the
country is equally important. Environment is another important thing that requires our attention.
Underdeveloped and Developing countries are still struggling to overcome poverty of larger
section of population and empowering them, Whereas developed countries are focusing on
environment protection. As there is a conflict between the environment and the socioeconomic
development, which should be taken with higher importance?
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7.1 Environment as Importance

Environment is under tremendous stress because of increasing population pressure on this
planet. It may be disastrous for the entire world if the issues relating to the environmental
protection are overlooked. And when the disasters strike, these do not distinguish between
the affluent and the poor or the developed or the underdeveloped.
Placing more emphasis on the socio-economic development by ignoring the environmental
issues is a short- sighted and short-term approach.
In the overall interest of humanity, it is imperative to give priority to the environmental
issues over the economic development, in case of a clash between the two.
Not limited but following list of additional features which could be added over intranet
leading to effective communication.
Socio-economic development has no meaning if the whole humanity is endangered. The
environmental degradation would not only affect the climate, but also the air and water
quality on this earth, which are essential requirements for sustaining the life.

7.2 Economic Development as Importance

The environmental issues can come to the fore only after the basic needs like food, clothing
and shelter are met.
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The developed nations have exploited the earth and its resources for several decades and
now when the developing nations are growing rapidly, these countries fear that the resources
may actually be stretched and less and less would be left for them on earth. That is why
these countries now talk of the environmental protection.
When we talk of human rights, the primary concern is the dignified and sustainable
livelihood for all, on the one hand, and physiological needs, on the other. Human rights
would be grossly violated if these basic needs of the citizens are not met. The
environmentalists must understand this.
The poor want their government to make suitable arrangements for the bare minimum needs
first. In other words, unless the minimum needs are met, it is useless to talk about the
environmental issues.
8

Need for Sustainable Development

Economic development without environmental considerations can cause serious environmental

damage affecting the quality of life of present and future generations. Sustainable development
attempts to strike a balance between the demands of the economic development and the need for
protection of the environment. It seeks to combine the elements of economic efficiency,
intergenerational equity, social concerns and environmental protection. The term sustainable
development has many interpretations it generally refers to non declining human wellbeing over
time. Sustainable development meets the needs of present without compromising the ability of
future generations to meet their own needs. The concept of sustainable development aims at
maximizing the net benefits of economic activities over time and providing a social safety net to
meet the basic needs of the poor. Sustainable development, therefore attempts to accelerate
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development in an environmentally responsible manner keeping in mind the intergenerational

equity requirements.

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