Introductory environmental economics application

This activity is appropriate for an early class period in either a micro principles or an environmental economics course. The application relies on very little prior knowledge on the part of students. The application can work in a classroom of any size. The application and debriefing exercise will require at least 30 minutes but need not stretch across multiple class periods. This activity is a stand-alone activity best occurring at the beginning of the discussion of market failure due to negative externalities.

Overview

This application asks students to consider why the transition away from fossil fuels toward renewable energy has been so slow. Students will recognize that the price incentive favors fossil fuels due to the external nature of many of the environmental costs associated with using fossil fuels.

Expected Student Learning Outcomes

Upon successful completion of this application exercise, students will be able to explain that the economy's slow transition away from producing energy from pollutive fossil fuels results in large measure from the fact that producers and consumers of fossil fuel energy do not bear the full costs associated with extracting and using the resources.

Information Given to Students

Environmental damage

The rapid economic growth during the last 200 years has resulted in great harm to the natural environment. The authors of one economics text state that "the permanent technological revolution -- which brought about dependence on fossil fuels -- may also be part of the solution to today's environmental problems." (CORE Econ, core-econ.org)


Why has the shift from fossil fuels to less environmentally destructive energy technologies been so slow?

A. The technology for converting wind, solar, and geothermal energy into a form easily used by machines has not existed until very recently.
B. The cost of the environmental resources consumed in production has generally not been paid by producers.
C. Government policy promotes fossil fuel energy use in favor of cleaner alternatives.
D. The harm done to the environment by much modern economic activity has been largely unknown until very recently.

Powerpoint slides for summary comments (PowerPoint 2007 (.pptx) 616kB Jan13 18)

Leading this activity is quite straightforward. Its place in the flow of the course is right at the beginning of the discussion of market failure due to negative externality. I would take care not to provide many prefatory remarks. I don't provide any at all. As always, you might signal to students what type of reasoning and/or evidence you want students to have at the ready to support their reports. Again, be careful not to give away too much. Here, I'd just ask student reporters to have one or two examples to support their answer.
Team answers are usually well-distributed across all four possibilities. B is pretty clearly the best answer but C should draw some votes from well-informed teams.
In the debrief, ask students for examples that illustrate their responses. Maybe ask one team to explain specifically why their answer is better than another team's. Once student reporters have argued their answers, I use the attached slides to summarize the exercise before moving on to the next AE.

Subsequent AEs, end of module quizzes, and homework problems all call on students to demonstrate mastery of the economic framework that analyzes the efficiency loss when an important negative or positive externality exists.

None.