Environmental Economics

1. What is willingness to pay? How does this relate to the concept of demand?

Willingness to pay can be defined as the maximum amount someone is willing to pay or give up to receive or avoid something. Willingness to pay is something that is different from person to person. Willingness to pay is directly related to the concept of demand. The more you are willing to pay for something the more demand you create towards the product. This goes into to the topic of elasticity of a product. Products can be elastic or inelastic. Determining whether a product is elastic or inelastic is based on the following: Necessity or luxury, price relative to income, number of good substitutes time (how long they have to adjust and avoid the change in prices). Elastic products are luxurious items, while inelastic products are necessities. People are more willing to pay for necessities because there doesn't really seem to be another choice. Demand refers to the willingness to buy a certain item in that moment in time.

2. When determining the cost of manufacturing a product, what considerations are included in the cost? Provide an example of a product and explain each consideration in relation to your example.

Price changes depending on people's wants and needs. Determining a price for your product is not as easy as it seems. There is a lot you need to take into consideration. Some considerations include: cost of manufacturing and distribution, competitor's price, how much profit you want to gain (increase market share), perceived customer value, etc. You also need to evaluate your position in the market place. This will help make sure you are selling you product at a price that is not perceived to be too cheap or too expensive. If it is a service you need to account for the skill level you attain and the experience you have had giving the service. For example, there is a lot that goes into the pricing of wine. When pricing wine you need to consider the costs of how the wine was made. You want to make sure you receive revenue, and in order to do so, sometimes that requires pricing you wine at a high price. You need to consider the land used, grapes, workers to maintain the grapes, barrels, bottling, shipping, and vendors. By the time it gets to the consumer you have to charge a lot.

3. When purchasing construction materials for a home renovation, what factors should a homeowner consider? Provide an example of a green building product--a sustainable alternative construction material--and explain each factor in relation to your example. Address how the choice of using this particular green building product might influence and be influenced by supply and demand.

When purchasing construction materials for a home renovation it is important to buy the right materials. In order to decide what those materials are you need to have a guided plan of what exactly you want renovated or constructed to the house. Even remodeling something small may be dangerous. It is important to have the knowledge and help of people that know what they're doing. Working alone can be harmful to the plan of action. It's easier said than done. There is no harm in asking for help. There are many green building materials. They are certified materials that meet specific green standards. These green materials are almost always more expensive. They are significantly better than non-green materials for the environment and help better in the long run. Most of the time, construction materials are based on performance, aesthetics, and cost, but now since green materials have been introduced two new considerations have been evaluated: what impact do the materials have on health and the environment. Such products are defined as those that have a "lesser or reduced effect on human health and the environment when compared to competing products that serve the same purpose" (Amatruda, 2010). For example, there are numerous choices of environmentally friendly paints. The paint looks exactly the same and has become increasingly popular.

4. What assumptions do economists make? Why does each assumption matter in environmental economics?

Economics is a social science that attempts to explain the reasons why people and organizations make choices under conditions of scarcity. Environmental economics is the application of the principles of economics to the study of how environment resources are manages. Environmental economics focuses on all the different facets of the connection between environmental quality and the economic behavior of individuals and groups of people. Economists make two assumptions: (1) Every economic decision maker tries to make the best out of any situation and (2) Every economic decision maker faces constraints. These two assumptions work hand in hand. The study of economic life begins from the fact that we all face scarcity and thus we must each make choices. Our resources are scare and we have to choose what is worth it and what is better to just pass up. When it comes to the environment, it is very important to make the best out of any situation. Things come and go, so you have to take what you can get. You may hit a brick wall, but you have to work with what you have. For example, when dealing with the issue of water usage, although raising the current price of water may not be fair to the people that may not be able to afford the raise in prices, economists have to think about what will help the economy. They have to make the best out of the situation even though they make face constraints.

5. Is the environment an economic asset? Is the environment a social asset? Explain.

An asset is anything that is useful and/or has value. When considering the environment as an economic asset you need to take into account that the environment doesn't only provide resources, but also ecosystem