nm0638: you may remember last time we were talking about some key aspects of 
natural resource use er we said that we would look at the element of scarcity 
we looked at time and dynamics and the effect that those things have on 
resource use we looked at technology we spent a few minutes talking about 
property rights and then we had a bit of a recap looking at various sources of 
uncertainty er surrounding our decisions concerning the use of natural 
resources over time we return to the issue of scarcity and we started off by 
saying that really the the fundamental resource use issue is that we have a 
rapidly rising global population increasing economic activity by that 
population resulting in a declining resource base and an increased production 
of wastes and therefore an increased burden if you like on the environment to 
assimilate those wastes so that's where we left it last time this time i want 
to continue to explore this issue of scarcity a little bit more and 
then to go on to develop a very simple framework er where we can actually try 
and determine the optimum resource use er over time you may remember at the 
start of last week where we were reminding ourselves of the role of economists 
in the environment and resource use we said well this is the simple view of the 
world that economists have we look at resources as inputs to the production 
system they're transformed into goods and services that we want to consume and 
we said that really that was a rather inadequate framework when we start to 
want to consider environmental issues within economics because what we have in 
fact is a whole series of waste products produced not only by the production 
system itself but b-, by the very process of getting resources for instance out 
of the ground from mining resources and from the process of consumption we 
produce all sorts of wastes from these three elements associated with the 
production process and we have no economic 
framework within which we can directly consider the problem of producing wastes 
we noted last week that what we called these things were externalities negative 
externalities problems that lie outside effectively of our normal economic 
framework and which somehow now we need to take account of because these things 
are causing us problems okay look a little bit of science mixed in with 
economics here the first law of thermo-, thermodynamics really just says that 
energy and matter can't be destroyed energy and matter can't be destroyed so 
that ultimately the resources that you use will end up being various types of 
different waste one thing that we know that we can do for many natural 
resources is to actually recycle some of these wastes and get back some of the 
resource input that we can then use again so if we want to start to incorporate 
those elements into our simple framework it might look something like this so 
here's 
our resource inputs the production process consumption that's our standard 
economic model we note the production of wastes from this process but now we've 
added another element that we can actually recycle some of these wastes to 
produce more resources there are two things that this diagram takes account of 
in addition one is the second law of thermodynamics which just says that 
resources are used entropically in other words they're dissipated so think of 
the use of oil say fossil fuel like oil it has loads of different outputs 
doesn't it it produces energy that we want yes but it produces loads of other 
emissions in all sorts of of other by-products C-O-two and so on and you can't 
capture those back combine them again and get the fossil fuel back the oil back 
again can you that's obvious resources are used entropically they get 
dissipated some dissipated into the environment and so on so this simple 
formula here is just saying that you can never recapture 
however good you are at recycling your waste you can never recapture the whole 
amount of the resource again which is pretty obvious i guess and that's what 
this diagram takes account of because here it says look however good your 
recycling some of these wastes are going to end up in the environment into the 
into the sink if you like of the environment we talk about environmental sinks 
the other thing this diagram takes account of is the fact that recycling itself 
is a resource using activity okay recycling itself is a resource using activity 
which is why we've got this red dotted line yeah showing that there's a 
resource input into the recycling process itself and occasionally you get crazy 
situations where recycling is such a great idea people think that they actually 
end up using more resources in the recycling process than they're actually 
saving okay any questions about that okay let's have a a brief and very 
simplistic look because 
these two sessions are introductory sessions for this course a brief and and 
rather simplistic look at natural resources and their characteristics and very 
very briefly i'm going to look at air land minerals water ecological resources 
and i probably won't look at er solar power or or sun to any great extent at 
all so if we start looking at air first i said it was going to be simplistic 
why is air important to us well first of all it's a source of nutrients for 
plant and animal species secondly it's a sink for pollutants we pump all sorts 
of stuff into the air don't we use it as a sink for pollutants it's important 
for atmospheric protection in the climate system it's an important energy 
resource wind power and it's im-, an important spatial medium to state the 
obvious and these figures aren't really worth getting down because they're just 
illustrative and i've already given you some ideas of reading and the United 
Nations er Environment Programme website 
where you can get er data like this probably more up to date data now as well 
but i just picked out some pollution figures for some of the major cities of 
the world so we've got London Sydney Montreal New York Beijing and Delhi and 
this first column looks at the number of days of the year when sulphur dioxide 
levels are above a certain limit think that's a hundred-and-fifty micrograms 
per metre cubed and we know that above that limit it will have a negative 
effect on human health on the far column here we've got the level of 
particulate matter yeah particles in the air er again the number of days that 
they're over a certain critical level and again that critical level we know 
will cause health problems in the population so you can see in London over the 
time that this survey was er taken er out of the year seventeen seventeen days 
in London where S-O-two levels were too high eleven in Sydney thirty-two 
Montreal twenty-two New York a hundred-and-fifty-seven in 
Beijing forty-nine in Delhi so not surprisingly er a city like Beijing er far 
more polluted than a city like Sydney in terms of sulphur dioxide at least and 
in fact when you start to look at particulate matter and these are particles 
that will have all sorts of deposits attached to them er some will be er cancer 
causing er chemicals et cetera et cetera have all sorts of impacts on human 
health er lung diseases bronchitis all these sorts of things three-hundred-and-
thirty-eight days nearly every day of the year er over the time this survey was 
taken in Beijing and Delhi were these particulate matter days over that 
critical limit and the U-N has worked out then that over six- hundred-million 
people live in cities where the sulphur dioxide level is having a bad effect on 
their health and one-and-a-quarter-billion people are in cities with 
unacceptable particulate matter so there's a lot of people living in an 
environment an air environment that is pretty bad for their health 
okay so those figures were taken out of the World Resources book that i showed 
you last last week again as part of our introduction let's have a quick look at 
land as a resource again obviously land an important spatial entity that we use 
to build on et cetera et cetera an important medium for example for crop growth 
an important source of other natural resources mineral resources and so on and 
again it's a sink for pollutants so in terms of its value to us what are the 
important characteristics of land what sorts of characteristics attributes of 
land are important to us any ideas yeah 
sf0639: it's in fixed supply 
nm0638: it's in fixed supply and that's sure that's the economist in you 
responding there isn't it yeah okay it's in fixed supply but what attributes 
what characteristics mean that land is either very valuable to us or not very 
valuable to us or very useful to us or not very useful to us yeah 
sf0640: fertility 
nm0638: sorry 
sf0640: fertility 
nm0638: yeah 
okay fertility level of fertility in the soil anything else 
sm0641: whether it's flat or kind of steep and slopey
nm0638: yeah okay so the topography of of the land yeah anything else 
sm0642: climate and microclimate 
nm0638: yeah okay climate so climate topography altitude these things are are 
linked of course er soil you mentioned anything else 
sm0643: its geography to other compared to other sources 
nm0638: yeah okay so its location is going to be important whether it's located 
near er another er important natural resource like a water resource like a 
river or the sea or whatever for instance and of course property rights 
important for all resources we said but particularly associated with with land 
as a resource and again i've just picked out a few figures looking at land use 
across the world so looking at er the percentage of crop land pasture land 
forest er and wilderness which is quite interesting throughout the world so not 
surprisingly er Europe thirty per cent of Europe is down to crops eighteen per 
cent to pasture 
thirty-three per cent to forest er and only four per cent is total wilderness 
so nineteen per cent will be land that's built on and all other land yeah 
including swamp desert et cetera so if you compare Europe with a country well 
with an area rather rather rather a region such as South America here we've got 
relatively little crop land overall eight per cent quite a lot of pasture yeah 
a lot of range management twenty-seven per cent lot of forest fifty-two per 
cent we know there's a lot important er forest resources in South America and 
quite a lot of wilderness too twenty-four per cent i think the U-N classified 
wilderness er as an area that had no signs of man's activities at all so 
there's no roads no habitations er no teleph-, telecommunications or or 
anything so no no sign of their er o-, of man's input at all and here's a quite 
an interesting contrast here for the U-S and Canada which have totally 
different figures the U-S r-, r-, relatively population dense 
compared with with Canada er so Canada sixty-five per cent of Canada is 
classified as total wilderness but of course a lot of those areas are very very 
cold areas in the far north okay so a a global idea of of land use i thought 
those figures might be useful to get things into perspective into context and 
while we're talking about forestry i just dug out a few figures on on forestry 
that might be interesting don't know whether we can see this but i'll talk you 
through it anyway a diagram here just showing the area of closed forests 
cleared annually in various tropical countries in the nineteen-eighties i've 
got some nineteen-nineties figures to see how things have changed in the 
nineteen-nineties so closed forests where there's a where there's a closed 
canopy over the top so you can see for instance that throughout the nineteen-
eighties Brazil was clearing over two per cent of its forest closed forest area 
every year yeah so if you carried on at that sort of rate 
then you can see that fifty or sixty years and you've virtually cleared the 
whole lot if you carried on at that rate depending on replanting of course 
India four-point-one per cent every year of closed forest Costa Rica here seven-
point-six per cent of its closed forest being cleared every year in the 
nineteen-eighties so you can see that deforestation was maybe still is we'll 
see er a real problem certainly up until the nineteen-eighties so what's been 
done about that since well these are updated figures sorry they're a bit 
scruffy this is for the nineteen-ninety to ninety-five period when in South 
America well it we only had Brazil before er two-point-two per cent but South 
America overall er losing at just point-five of w-, one half of one per cent 
every year yeah zero-point-five per cent a year Asia zero-point-seven per cent 
a year Central America still er relatively er rapid compared with other regions 
one-point-three per cent a year but nothing like the 
seven-point-six per cent that it was er back in the nineteen-eighties Africa 
point-seven per cent Europe is actually increasing its forest area slightly 
point-three per cent so these are total figures they take account of 
afforestation a-, as well so they're not directly comparable but certainly 
countries areas of the world have taken action because y-, you know to try and 
slow down the rate of deforestation but at a global level yeah the net effect 
is still that we are losing trees on the planet at a rate of around point-three 
per cent er a year we've got two other resource types that i want to look at er 
sorry three other fairly briefly the next is a quick look at mineral resources 
and one simple classification of mineral resources might be into whether they 
are metallic or non-metallic so the metallic resources we're talking about 
relatively abundant resources such as iron iron ore and of course there are 
relativis-, relatively scarce ones 
such as copper gold and so on on the non-metallic side we can look at the 
different uses to which non-metallic resources are put so we can classify them 
into for instance whether they're used for chemical uses of one sort and 
another given the example of nitrates whether they're used for building 
purposes clay cement sand and of course the important fossil fuels that are 
used to produce energy like oil and coal and so we're when we're looking at 
this issue of scarcity it's a fairly relative term isn't it and i've got some 
figures here that i thought were interesting and i haven't updated them because 
i haven't er managed to get hold of comparable data i wanted to update them to 
ninety-eight and they didn't actually produce comparable data so i so i 
couldn't do that but although this data is over ten years old it still still 
makes the point it looks at sort of major region in terms of production and 
consumption er of iron ore major regions in the world and 
it looks at the world total the interesting thing to look at are these two 
figures the reserves and the reserve base and i think this is a very useful way 
of thinking about the scarcity of a resource it looks at the life-years left of 
the resource at current rates of consumption so of reserves that are at the 
moment economically viable to actually mine in nineteen-eighty-eight there were 
a hundred-and-sixty-seven years worth of iron ore left in the world but there 
are other reserves that we know about that at the moment or at least in 
nineteen-eighty-eight weren't economically viable to mine and if you included 
those all known reserves then there's over two-hundred years two-hundred-and-
thirty-six years worth of iron ore in the world but it could cost you quite a 
lot to get it all of it and the smudgy question that i had written down here 
was to what extent did these figures take account of recycling and i didn't 
find the answer to that i'm afraid from the U-N 
figures clearly if you stepped up your recycling programme then er effectively 
you can reduce your level of consumption and er increase your your life-years 
from your resource so that's iron ore relatively abundant we've got over two-
hundred years worth probably of known reserves there are probably other 
reserves that we haven't found yet 
here's a different resource again the only figures that you might want to take 
down in your notes are these life-, er life-year figures here we can see with z-
, with zinc a relatively scarce metallic mineral total known reserves 
regardless of how much it costs us to get the stuff out of the ground only 
forty-two years in nineteen-eighty-eight and only half of that were actually 
economically viable to mine in nineteen-eighty-eight just twenty-one years so 
in terms of relative scarcity er zinc a relatively scarce mineral resource 
compared with iron ore fairly obviously and what i was particularly interested 
in is finding out the estimation of this figure today ten years on does that 
really mean today that we have less than ten years worth of reserves of zinc 
left if i can find the figure i i will i'll let you know just a few other quick 
illustrative figures on life-years you won't be able to see all this but i will 
er 
point out the interesting bit looking at fossil fuels just quickly running 
through here looking at the life-years left again in nineteen-eighty-eight 
looking at current levels then of er consumption looking at oil just ten years 
worth in North America apparently over fifty years in Latin America Middle East 
they couldn't even estimate it they just put a hundred years plus in the Middle 
East lucky old Middle East so a relatively scarce resource certainly for North 
America and Western Europe here what about natural gas again North America 
fourteen years Western Europe thirty-four years er Middle East again a hundred 
plus years Africa a hundred plus years so the world totals at the bottom here 
forty-one years worth of er reserves of oil global oil reserves fifty-eight 
years worth of natural gas apparently and when you look at coal we've got over 
two-hundred years worth of coal reserves in the in in the world so coal a 
relatively abundant resource compared 
with oil and natural gas so in Western Europe again we've got over two-hundred 
years worth of coal reserves Africa's got three-hundred-and-fifty years worth 
and so on relatively abundant sorry so that was our quick look into into 
minerals let's have an even quicker look at water as a resource and if you 
haven't done this exercise before it's quite illuminating write down all the 
the uses all the reasons why water is valuable to us all the uses for water 
what do we use water for and all the reasons why it might be valuable to us 
we'll see what we've got in a couple of minutes 
nm0638: okay what have we got who wants to start us off anyone uses of water 
sf0644: energy 
nm0638: energy 
sf0644: yeah 
nm0638: yeah okay we'll come on to that in a minute 
sm0645: drinking 
nm0638: yes thank you for stating the obvious one first on my list yeah okay er 
i've called it potable supplies drinking water supplies because of course in in 
many countries certainly in this country we use drinking quality 
water to do all sorts of things with not just drink so we wash ourselves in 
drinking quality water we wash our clothes in drinking quality water we 
sprinkle our gardens with drinking quality water in this country whether that's 
a good use of potable supplies of water i'll leave you to think about okay so 
potable supplies what else 
sm0646: non-potable supplies [laughter] 
nm0638: which you use for 
sm0646: er energy 
nm0638: yeah we've had that
sm0646: we've already had er 
nm0638: yeah 
sm0646: for irrigation and 
nm0638: okay all right irrigation anything else we'll come on to that it's f-, 
further down on my list 
sm0647: recreation 
nm0638: yeah okay recreation boating and all sorts of things yeah 
sm0648: food source 
nm0638: food source fisheries 
sm0649: fishing 
nm0638: seaweeds all sorts of things yeah anything else please someone the next 
thing on my list what else do we use water for we drink it irrigate we produce 
power using it 
sm0650: transport 
nm0638: yeah okay good it's not the next thing on my list but 
sf0651: sanitation and removal of sewage 
nm0638: 
yeah okay anything else well i suppose that is the sort of category i was 
thinking of actually various industrial uses whole load of industrial uses from 
cooling to all sorts of things okay you mentioned irrigation we've got that 
hydro-electric power er transport as well as recreation i've included er sort 
of landscape amenity value these things are all linked anything else we've had 
food production anyone got anything else on their list that we haven't had 
sm0652: it's life-sustaining 
nm0638: yeah yeah i think that's quite an important thing 
sm0652: yeah 
nm0638: to put down so it yeah it's life-sustaining i've got sort of habitat 
and ecological value and this smudgy bit just talks about biological cycles 
which is your point yeah it's a it's crucial to biological cycles isn't it and 
it's important for habitat ecological value i know a lot of these things are 
are linked you mentioned food production as well as that of course it can be an 
important source of 
minerals it's an important sink for pollutants and linked to the biological 
cycles bit of course it's important to climate system and that's not an 
exhaustive list i'm sure you can think of of other things so it's a pretty 
valuable resource to us isn't it a pretty useful resource we'll stop for a a 
quick coffee break in a minute but before we do that just one area of use here 
which i thought might be useful to look at and that's er irrigation so here 
we're looking at fresh water withdrawals by region we're looking at figures for 
the nineteen-eighties and projections for this year two-thousand and er because 
the the diagram didn't have that i've just coloured in if you like the 
proportions that are used for different uses so I-R is the red is irrigation I-
N is what's used for industrial purposes and D is what's used for domestic 
purposes so in Europe most water is used for industry followed by irrigation 
followed by domestic purposes not surprisingly in Asia the vast 
quantity of water is used for irrigation with a relatively small amount used 
for industry and domestic purposes and so on you can see the figures for 
yourself what's noticeable is that over the nineteen-eighties to two-thousand 
period there has been a pretty big increase in the amount of of water used for 
these various purposes again putting even greater demands on the resource base 
yeah remember the diagram we had increasing population increasing economic 
activity this is these are all signs of that and the stresses and strains that 
that that places on resource use on resources okay finally just something to 
think about i thought i'd get some pollution figures out and i i just hit on 
two little figures as being illustrative okay sorry and again the-, these are 
late nineteen-eighties figures er this is looking at faecal coliform bacteria 
in the water so this is looking at the levels of these bacteria per hundred 
millilitres of water yeah so faecal coliform 
bacteria coming from faeces for instance so in the U-K looking at the River Exe 
which is around Exeter way per hundred millilitres of water there are five-
hundred-and-fifty of these bacteria per hundred millilitres of water yeah but 
if you looked at the Sabarmati in India and i don't know whether that's a 
system or a river i've no idea what that is yeah then you are looking at one-
point-seven- billion of these bacteria per hundred millilitres of water so 
that's er a relative measure of pollution for those two s-, river systems which 
are being used for totally different purposes of course in totally s-, 
different circumstances and there's a great improvement in this river in India 
because it was five-point-four-billion faecal coliform bacteria per hundred 
millilitres of water so it's gone to er less than half about a third so all 
sorts of waste will be go-, will be being produced er pumped out into this into 
this river of course people will be 
washing in it er livestock would be drinking and being washed in it et cetera 
et cetera all sorts of activities being carried out okay but not a not a very 
healthy environment is it to be washing in and so on now you can imagine the 
health problems that accrue from that level of pollution okay thank you that's 
time for coffee obviously er let's just break for five minutes please because i 
do want to finish within half an hour or so okay so a quick comfort break for 
five minutes 
nm0638: so that was a quick look at er water resources 
let's have a look at er ecological resources what do we mean by ecological 
resources here's a little definition all plant and animal resources in terms of 
individuals species communities habitats and ecosystems other than those 
managed specifically for financial gain a slightly sort of hazy definition but 
in other words commercial fish farms wouldn't come into this category 
commercial forest plantations wouldn't i guess come into this category this 
time just let's start with a little bit of simple little bit of data looking at 
er globally threatened animal species and i've just chosen three countries 
three very different countries Brazil the U-K and India and these are animal 
species that won't include insects so Brazil some three-thousand species known 
of which the U-N reckoned a hundred-and-five were threatened and the i think 
the definition of being threatened was er 
extinction er likely within the next ten years unless something was done the U-
K relatively speaking not so species rich for these animal species three-
hundred-and-thirty-five of which sixty-six of them were considered to be 
threatened and India again relatively species rich over two-thousand known 
species of which a hundred-and-seventy-eight were thought to be threatened and 
i don't know what message from from this little bit of data er sort of comes 
across to you but one of the things that comes across to me is that here we are 
in in the U-K in the developed world we're always talking about er dreadful 
things happening in other parts of the world and the loss of species the loss 
of rainforest and the effect on species et cetera in Brazil but here we are 
with a relatively high proportion of our own animal species threatened by 
possible extinction so what that says to me is that maybe we ought to look at 
our own backyard and start doing some things in this 
country as well which we are of course okay so why are ecological resources 
important to us what's their value to us why are s-, we so worried about er 
species becoming extinct habitats losing habitats and so on any ideas perhaps 
they're not perhaps we shouldn't bother who cares who cares if these species 
become extinct let's not waste resources worrying about them yeah 
sm0653: 
nm0638: does it matter if some obscure species in Brazil becomes extinct 
sm0654: it's all to do with the natural equilibrium 
nm0638: okay so we're worried then that we may disrupt the environment so we're 
very worried about environmental stability and sustainability the assumption 
being that species rich ecosystems are more stable ecosystems and if you start 
to lose species you're disrupting the ecosystem which may lead to environmental 
instability of one sort or another we're not quite sure and anyway in the long 
term it can't be sustainable can it to keep losing species all the time that's 
the argument 
okay why else are these ecological resources valuable to us useful to us 
sf0655: something might have medical value 
nm0638: yeah okay something might have er medical value yeah we'll come on to 
that in a minute 
sm0654: part of the food chain 
nm0638: y-, part of the food chain in what regard 
sm0654: we might not directly eat it but it keeps the nutrients part of the the 
the food chain
nm0638: yeah okay okay so it's important maybe to fish stocks or whatever yeah 
o-, okay yeah that's that's certainly true anything else 
sf0656: maintain like woodlands and grass and 
nm0638: yeah is that different from the en-, environmental stability do you 
mean something different than just environmental stability is there 
sf0656: no i suppose that's 
nm0638: okay er well maybe it's part of this the direct returns bit we get all 
sorts of direct returns don't we from er ecological resources so we pick 
berries we harvest wildlife for meat and yeah so loads of different sorts of 
direct returns and as well and th-, this is the thing i thought you were 
getting at namex was er there's a visual a 
landscape an amenity aspect to many of these resources game reserves bring in 
tourists in Kenya or wherever er and so on often you know i-, these ecosystems 
mean that there's a nice landscape that we enjoy and so on you talked about er 
advances in medicine and so on well you know these species are an important 
source of genetic material they're genetic reserves maybe that elusive cure for 
a certain disease is er you know the secret is locked up in one of these 
species that are threatened or maybe there's some genetic material that we can 
use for something else who knows i mean these days with biotechnology er who 
knows what's going to be possible in the future this is one of our many areas 
of uncertainty for resource use isn't it technology okay education and research 
value to us and what do you think about this economists often talk about 
existence value and i question whether it itself exists er the idea of 
existence value that a species has a value to us just 
because it exists doesn't matter if if it doesn't have any of these benefits 
necessarily but it's important
sm0657: intrinsic worth 
nm0638: exactly has this intrinsic worth it's not because it has any real 
necessarily any tangible benefit to it we should keep it because it exists and 
we shouldn't get rid of it whether that is really just because it exists or 
actually whether it's because of one or more of these things yeah the 
possibility you know it's useful as a genetic reserve er maybe it contributes 
to environmental stability that's what i question i think i think probably what 
we're saying when we talk about existence value is that all species have a 
value to us because maybe it's important for environmental stability maybe in 
the future it could add to our direct returns maybe it could be important 
genetic material that we'll use in the future and so on but you will come 
across this this term existence value in the literature and i think in in a 
future session you're probably going to talk about it a little bit more with 
with namex okay so we've been getting into sort of looking at some data and 
considering the more practical aspects if you like of er natural resource use 
and the environment er what i want to do now is to get back to a little bit of 
economics because one of the things that we've nearly that that we've never 
actually got straight is well what sort of economic framework do we need in 
order for us to er decide on the best use of resources d-, i didn't give this 
to you last time did i no it's just a copy of the overhead that i'm going to 
put up in the screen in a moment and it just saves you from having to get it 
down lots of take-aways let's pass them along please so let me remind you about 
some very basic economics that hopefully you haven't forgotten but i thought i 
ought to remind you anyway so now what we're trying to do is determine the 
optimum use of a resource and we assume that our aim is to 
maximize the net benefit to society now we know that governments and so on 
don't necessarily actually have that aim but let's assume that that's what we 
want to do to maximize the net benefit to society from the use of our resource 
so on the Y-axis here we have the benefits and costs associated with using the 
resource in pounds on the X-axis we have the amount of the resource that we're 
using so if you look at the total social benefit curve yeah T-S-B total social 
benefit you can see that as we use more and more of the resource our total 
social benefit increases and increases i've assumed diminishing marginal 
returns in that it actually starts to tail off or diminishing utility that may 
not be true it could be a straight line doesn't matter for this analysis okay 
so the benefit increases as we use more and more of the resource here we've got 
the costs associated with using the resource the costs of mining it using it to 
produce whatever we we 
want from the resource energy from fossil fuels whatever and so here we have 
what i've called the total private cost so it's the cost to to industry of 
using the resource and here you can see again we've got increasing costs we 
we're assuming diminishing marginal returns increasing costs per unit of 
resource are assumed so the greatest benefit the greatest net benefit that we 
can achieve is the biggest difference isn't it between total social benefits 
and total social costs yeah that's the biggest net benefit so at this level 
here that is the optimum level of our resource that's the level at which we 
maximize the net benefit to society and if it was a private firm that we were 
talking about yeah that would be the profit maximizing position wouldn't it and 
of course the profit maximizing position is where marginal costs equal marginal 
benefit yeah so they're just the marginal curves straight lines in fact that go 
with these total curves so here we have marginal social benefit curve yeah 
which is declining like a demand curve and here we have the marginal private 
cost curve 
like a supply curve and here's our optimum level of resource and i've got here 
for example barrels of oil so at level Q that level of use of oil is where we 
maximize you can see here the net benefit to society and if we wanted to bring 
that allocation about the market would do it for us if it was a perfect market 
it would price these barrels of oil at P each yeah and that would be er a 
perfect allocation of resources maximize net benefit to society great easy the 
problem is as we said is that our simple economic framework has in the past 
failed to take account of things like environmental pollution these we said we 
consider as externalities to the production system so what happens if we try to 
take account of these externalities what we're saying then is that our private 
cost curve the costs of getting that oil out of the ground and the costs of 
getting it into a form where we can burn it in our cars and get energy for 
instance is actually not the true cost of using that resource because for 
instance our cars pollute the atmosphere and an external cost is borne by third 
parties maybe you or i walking along inhaling fumes and our health suffers or 
maybe global warming whatever so there's an external cost that falls on other 
people in society than the oil companies and just the people that drive their 
cars there are other people that bear the costs as well so these external costs 
then have to be taken into account in order to get the total social cost of 
resource use rather than just the private cost so this green curve suitably 
green curve here has taken account of the negative externalities like 
environmental pollution associated with using the resource and you can see the 
cost curve has shifted upwards now if we use this cost curve instead of the 
private cost curve to look at the optimum use of our 
resource you can see that the optimum changes and net benefit to society from 
using the resource is actually achieved at a lower level of resource use here 
than previously and if we look at the marginal cost and marginal benefit curves 
we can see that perhaps even more clearly so now we have the marginal social 
cost curve added to this diagram same diagram as before we've just added this 
green marginal social cost curve yeah which is the slope isn't it these 
marginal curves are the slope the rate of change of these total curves yeah so 
that's the slope of this curve yeah so you can see that the slope is increasing 
and hence this marginal social cost curve is increasing so the optimum use of 
our resource that was at Q now that we've taken account of the negative 
environmental externalities associated with the use of this resource our 
optimum is actually not at Q yeah we've been using too much of this resource 
it's actually here at Q-dashed in green so in 
order this diagram is telling us in order to maximize the net benefit to 
society we need to cut back on current usage of oil and use a little bit less 
of it and again that point is shown by where the marginal social cost curve 
cuts the marginal social benefit curve the other thing this diagram tells you 
is that where the price of oil before was price P if you want to bring about 
this environmentally-friendly maximum benefit to society you've got to change 
the price of oil and the price that'll bring about this level of resource use 
again is where the marginal curves cross which this time now is P-dashed so 
this is telling you if you want to bring about this allocation of resources 
within society you're going to have to increase the price of oil to consumers 
from P to 
P-dashed because the market won't do that the market will set the price at P so 
one of the things for instance that you might want to do is to place an 
environmental tax on oil so that the price people pay isn't P but it's P-dashed 
and that's is one of the things that namex is going to talk to you about er in 
future weeks are there any questions about that diagram i i think it's fairly 
simple and straightforward you should have seen diagrams like this before but 
are there any questions because it's important that y-, that you understand it 
at this simplistic stage before you do any further theory okay i can see you're 
totally exhausted from the experience of doing a bit more economic theory so i 
think let's call it a day shall we okay and next week will be will be namex