chapter  8
Environmental Quality as a Factor Input
Pages 32

In addition to providing services directly to individuals as consumers, environmental and resource systems can affect the costs and output levels in the production sector of an economy. Costs and output levels can be affected, for example, by changes in the flow of minerals and petroleum from the ground, the negative effects of air pollution on the flow of food and fiber from agriculture, changes in precipitation and/or temperature associated with the accumulation of greenhouse gases, and the impact of pollution on the costs of manufactured goods through requirements for more frequent cleaning, repair, and replacement of materials. The effects of these changes will be transmitted to individuals through the price system in the form of changes in the costs and prices of final goods and services and changes in factor prices and incomes. All of these examples involve a common economic mechanism. Improvements in the resource base or environmental quality lower costs and prices, and increase the quantities of marketed goods, thus leading to increases in consumers’, and perhaps producers’, surpluses. Similarly, increases in pollution can cause economic harm to producers and consumers by decreasing their surpluses.