GALTIMA MAI KYARI

COLL.EGE OF HEALTH SCIENCES AND TECHNOLOGY

P.M.B 1028 NGURU, YOBE STATE

DEPARTMENT OF ENVIRONMENTAL HEALTH

LECTURE NOTE

ON

ENVIRONMENTAL HEALTH ECONOMICS

(EHT305)

BY

ABUBAKAR LAWAN

APRIL, 2023
Health economics is concerned with the alternative use of resnutces in the health
services

sector and with the efficient utilization of economic resources such as human
resource

material and financial resources, Every health worker needs to acquaint him/
herself with

the basic concepts of economies and its application to the health sector in order
to manage

health institutions and health delivery system efficiently

Environmental health economics as a course is designed to give the

environmentalist an

in-depth explanation of economic concepts and their applications in real life

situation. This

is to enable the students have better understanding of the environment with

respect to

economic viewpoint. The lecture note on environmental health economic EHT305

is

prepared in line with the set curriculum of environmental Health Officers

Registration

Council of Nigeria EHORECON which is currently in use in all registered and

accredited

colleges of'health in Nigeria. The materials in this lecture note are compiled from
different

books that are published by different authors and also from the Internet.

Definitions of Economics
The study of how men and society end up choosing to employ scarce resources
that

could have alternative uses. - Samuelson

An enquiry into the nature and courses of wealth of nation. - Adam Smith. Thus,

He is regarded as the father of economics for he laid the foundation of economic

as

a discipline.

Economics is the science of material welfare. -A.C Pigou Alfred

Economics is the study of mankind in the ordinary business of life.

Marshall

Economics is the science that treats phenomena from the standpoint of price.

Davenport

• The practical science of' production and distribution of wealth. - J.S. Mill

• The scene which stin human behavior m a relationship teteen need t

scarce meuns wieh have alternative see Prof Levet Rthbins

Branches of economies: Macroeconomics versus microeconomics

A major distinction is made between macroeconomics , which studies the

functioning of the economy as a whole, and microeconomics, which analyses the
behavior of individual components like industries, firms and households.

1. Macroeconomics: The study of the behavior of the entire economy and

concerned with the behavior of the economy as a whole or with the broad
aggregate of economic life such as national output, income, the overall price
level, unemployment, and foreign trade. It examines such historical issues as why
did production and prices in some countries and the rest of the industrial world
collapse during the great depression of the 1930s. In addition to helping people in
their personal lives, economics is required to understand key national issues and
to make progress in dealing with them. Economics plays two distinct roles in
promoting the understanding of national economic issues.

First it helps to describe, explain and predict economic behavior-as for example
when it helps us understand the causes of poverty. But for many people the pay-
off from such economic knowledge comes when it is applied to second task, that
of improving economic performances. This distinction between description and
prescription is central to modern economics

KEY FEATURES OF MACROECONOMICS

 Macroeconomics deals with the functioning of the economy as a whole.
 Macroeconomics seeks to explain how the economy's total output of goods
and services and total employment of resources are determined.
 It deals with the brood economic issues, such os full employment or
umemployment, capacity or under capacity production, a low or high rate
of growth, inflation or deflation.
 It is the theory of national income, employment, aggregate consumption,
savings and investment, general price level and economic growth.

2. Microeconomics: Deals with the behavior of individual prices and quantities

(Issues at individual level). Our knowledge of economics helps us to manage our
personal lives, to understand society and to design better economic policies. The
role of better economic understanding in guiding our individual lives will be as
varied as are our personalities or physiognomies. Learning about the stock market
or about interest rates may help people manage their own finances better;
knowledge about price theory and antitrust policy may improve the skills of
lawyer; better awareness of the determinants of cost and revenue will produce
better business decisions. The doctor. the investor and the farmer all need to
understand about accounting and regulation to make the highest profits from
their businesses.
 KEY FEATURES OF MICROECONOMICS

 Microeconomics studies the economic behoviour of individual economic

units.
 The study of economic behaviour of the households, firms and industries
from the subject-matter of micro economics.
 It examines whether resources ore efficiently allocated and spells out the
conditions for the optimal allocation of resources so as to maximize the
output and social welfare.
 Microeconomics is concerned with how the individual consumer distributes
his income among various products and services to maximize utility.
 Micro-economics is concerned with the theories of product pricing, factor
pricing and economic welfare.

Normative versus positive economies (Fact or opinion?)

When using economics we must be careful to distinguish between normative

statements (or value judgments) and positive (or factual) statements. In the world
today, yet health care seems to be in almost permanent crisis - there are
shortages of hospital beds and patients are left to lie in corridors, while
politicians argue endlessly over whether more or less is being spent on the
National Health System (NHS). Why is it that health care is such a controversial
area? Why is there never enough money to give us the level of health care we
want? To answer these questions we need to introduce and apply a range of
economic concents. How can we resolve the kind of dilemmas expressed in these
Headlines? A statement such as "Specialist in heart-lung transplants resigns from
the national health system in protest at lack of funding" is a positive statement: it
can be shown to be true or false and is not dependent upon the value system of
the observer. In contrast, "Health care is a basic right and should be provided
free" is a normative statement. It cannot be proved true or false: our view of it
depends on our value system. One of the things which make the debate over the
provision of health care difficult to resolve is that positive and normative issues
are very much intertwined. Sorting out fact from opinion is a first step, but it does
not explain why there are not enough beds in hospitals or why people might be
refused treatment. Economists believe that it is important to distinguish
questions of fact from value judgments and opinions.

1. Positive economics: describes the facts and behavior in the economy. What
percentages of teenagers are unemployed? How many people earn less that Birr
6,000 a year? What will be the effect of higher cigarette taxes on the number of
smokers? These are questions that can be resolved only by reference to facts;
they are all the realm of positive economics.

2. Normate economics: involves ethics and value judgements. Should the

government give money to poor people? Should the public sectors (government)
or the private sector (business) provide extra jobs for unemployed teenagers?
Should higher taxes or lower spending reduce the budget deficits? These are
questions involving deeply held values or moral judgments. They can be argued
about, but they can never be settled by science or by appeal to facts. There simply
is no right or wrong answer to how high inflation should be, whether society
should help poor people or how much the nation should spend on defense. These
questions are best resolved by political decision, not by economic science.

Economics goods and services

In economics , goods refers to items that satisfy human needs and wants, and
provides utility. Economy goods are material items which usually have economic
value and are desired by human beings for satisfaction of needs and want. On the
other hand, economic services are the non-material or intangible items that are
wanted by human beings. To sum up. economic goods and services are all
material and non-material items which have economic value and satisfy human
needs and wants. The production, distribution and consumption of goods and
services constitutes all economic activities and trade. It is worthy of mentioning
that consumption of goods and services provides satisfaction (utility) to both
consumers and producers.

Economic wants
This refers to goods and services which human beings desire to consume. Goods
are tangible commodities like cars, foods house ete. while example of services
include hairdressing, medical services, laundry services etc.

A want is a product desired by a customer that is not required for us to survive.

So, want is the complete opposite of need, which is essential for our life.

Needs are basic requirement

The Concept of Resources

In broad terms, resources can be defined as anything that is directly or indirectly

capable of satisfying human wants. Resources can be classified from two
perspectives which are;

1. Traditional economics resource classification and,

2. Environmental economics resource classification

1. TRADITIONAL ECONOMICS CLASSIFICATION OF RESOURCES

Traditionally the economic notion of resources classify resources into three broad
categories: land, labour and capital

1. Land: This refers broadly to natural resources which are the stock of living
and non-living materials found in the physical environment, and which have
an identifiable potential use to human begins.

It should be noted that land is a very inadequate expression for what in a wider
context amounts to the natural resources base. This is because it could be
misunderstood asa place to build factories, cities and physical infrastructures like
hospitals, schools, e.t.c. By understanding land to mean all non-man made natural
resources, the idea of what is in, on and over the land is included becomes
clearer. Thus, in Environmental Economics, it is better to say “natural resources”
rather than simply “land”. Agricultural land, deposits of ferrous and non-ferrous
minerals, water, fisheries, and other aquatic life, wilderness and its multiple
products are examples of material resources.

2. Labour: Labour encompasses the productive capacity of human physical

and/or mental efforts, measured in terms of ability to work or produce
goods and services. Entrepreneurship is often included under labour.
3. Capital: This refers to a class of resources that are man-made for the
purpose of creating a more efficient production process. In other words,
capital is the stock of produced items available not for direct consumption,
but for further production process. Examples include all sorts of
machineries.

Resources refers to productive instruments that enable human beings satisfy

their needs and wants. Example includes land, labour, capital, entrepreneurship,
time, information and technology.

Resources can also be classified according to whether they are replenishable or

not. Thus we have the following categories.

Renewable Resources: resources are said to be renewable if they are replaced by

natural processes at a rate comparable or faster than their rate of consumption
by humans. In other words, renewable resources have a natural rate of
replenishment sufficient to augment the stock. Thus, renewable resources
naturally regenerates over time e.g. fish, trees, wildlife, grazing lands. The
environmental economic issues revolve round the consideration of the impact of
a renewable resource use (extraction or harvest) on the rate of replenishment. If
too much is harvested, the rate of replenishment may not besufficient to leave
enough resources for the future. If too little is harvested, opportunities for gains
are lost. The harvest decision involves a comparison of marginal benefit with
marginal cost. If MB harvest > MC harvest, more harvest is justified, otherwise (If
MB harvest< MC harvest) further harvest is not advised.
Non-Renewable Resources: these are resources for which there is no
replenishment or the rate of growth is so slow as to be imperceptible in human
life span. Thus, for nonrenewable resource, the natural rate of replenishment is
negligible in terms of augmenting the stock of the resource. Examples include oil,
gas, uranium, aluminum e. t. c. The three stages of non-renewable resource use
to consider in economics are exploration, development and extraction. The
exploration, development or extraction decision also involves a comparison of the
marginal benefit to marginal cost.

Opportunity cost is otherwise called real cost or true cost, The concet of
opportunity cost is used in economics to express cost interms of forgone or
sacrificed alternative . In economics, there is difference between money cost of
an item and real cost. Money cost refers to the amount of money paid for
commodity. However, real cost of satisfying a want is the next best alternative
that had to be sacrificed in order to do so. This is what economist is always
interested in the real cost of a choice made.

Opportunity cost in the expenditure of time

The application of opportunity cost in time is when an individual is faced with a

choice between going to Cinema or attending a meeting. He has to choose
between the two. If he decided to go to the cinema, his opportunity cost is the
meeting he could not attend because of the time constraint.

Scarcity is o one of the key concepts of economics. It is the central economic

problem. Scarcity refers to limitation. It also refers to a situation where demand
for natural resources, products or services far exceeds its available resources to
fulfil needs or wants are either limited or costly. A student may desire to have
new pairs of shoes, uniforms etc. we may wish to possess the latest brand of
motor van, own self-contained etc, but the means or resources with which to
satisfy our multitude of wants are scarce. By scarce, the economist mean limited
in supply. This implies that the means at our disposal with which to satisfy our
unlimited wants are inadequate.

SCARCITY AND ITS ECONOMIC IMPLICATIONS

At the root of any economic study is the issue of resource scarcity. In fact, as a
discipline, economics is defined as the branch of social science that deals with the
allocation of scarce resources among competing ends. What exactly do
economists mean by resource scarcity?

what are the broader implementation of scarcity? For economists, scarcity is the
universal economic problem. Every human society, whether a tribal society such
as the Aborigines in Australia or an economically and technologically advanced
society such as Japan, is the Abke

contonted with the basie problem of scarcity That is, at any point in time. given
societal

reounce endowments and technologically know-how, the total sum of what

people want te

have (in terms of goods and services) is far greater han what they can have
(Kohler 19%O)

Considering that human wants for goods and services are immense and, worse
yet, insatiable in a world of scarcity, what can be done to maximize the set goods
and services that people of a given society can have at a point in time? This
question clearly suggests that the significant economic problem involves rationing
limited resources to satisfy human wants and, accordingly, has the following four
implications:

A. Choice- the most implication of scarcity is the need to choose. That is, in a
world of scarcity, we cannot attain the satisfaction of all our material needs
completely. Hence, we need to make choices and set priorities.
B. Opportunity cost- every choice we make has a cost associated with it; one
cannot get more of something withot giving up something else. In other
words, an economic choice always entails sacrifice or opportunity cost- the
highest-valued alternative that must be satisfied to attain something or
satisfy a want. In a world of scarcity, “there is no such thing as a free
lunch.”
 C. Efficiency – in the presence of scarcity, no individual or society can afford to
be wasteful or inefficient. The objective is, therefore, to maximize the
desired goods and services that can be obtained from a given set of
resources. This state of affair is attained when resources are fully utilized
(full employment) and used for what they are best suited in terms of
production (i.e., there is no misallocation of resources). Furthermore,
efficiency implies that the best available technology is being used
(McConnell and Bruce 1996).
D. Social institutions- as noted earlier, the essence of scarcity lies in the fact
that people’s desire or goods and services exceeds society’s ability to
produce them at appoint in time. In the presence of scarcity, therefore, the
allocation and distribution of resources always cause conflicts. To resolve
these conflicts in a systematic fashion, some kind of institutional
mechanism(s) need to be established. For example , in many parts of te
contemporary world , the market system is used as the primary means of
rationing scare resources. How this system operates conceptually is briefly
discussed in the next section.

Basic concepts of demand and supply analysis

1. Definition of Demand: Need + ability and willingness to pay for a commodity

 The schedule of amounts of any product that buyers will purchase at

different prices during some stated time period
 Desire refers to people's willingness to own a good.
 Demand is the amount of a good that consumers are willing and able to buy
at a given price.
 Demand is defined as the ability and willingness to buy product at a
particular price, ceteris paribus. Ceteris paribus is a Latin phrase that means
holding other factors constant while some other factors change
 Demand, in economics, is the willingness and ability of consumers to
purchase a given amount of a good or service at a given price.

Demand refers to the quantity of a commodity which consumers are willing and
able to purchase at a given price and at particular period of time. Price is very
important in demand because it is the determinant of the quantity of a
commodity which consumers are willing to buy. The economist differentiate
between need, want and demand by talking of effective demand. Effective
demand refers to a want or need which has been backed up by the willingness
and ability to pay for the commodity at a particular price and time. For example, if
a student has the money to purchase a Cake and is willing to buy it, then he/she
has effective demand for it.

Conditions of Demand

 Desire for a commodity.

 Purchasing power.
 Willingness to pay.
LAW OF DEMAND

The law of demand states that the higher the price of the product, the lower the
quantity demanded of the product and the lower the price of a product, the
higher the quantity demanded, ceteris paribus.

The demand for a good is the quantity of the good that consumers are willing and
able to buy at each price over a period of time, ceteris paribus. The quantity
demanded of a good refers to the quantity of the good that consumers are willing
and able to buy. The law of demand states that there is an inverse relationship
between price and quantity demanded. When the price of a good falls, the
quantity demanded will rise. Conversely, when the price of a good rises, the
quantity demanded will fall. Naturally, consumers are willing and able to buy less
as the price rises. The demand curve of a good shows the quantity demanded of
the good at each price over a period of time, ceteris paribus. The demand curve is
downward sloping due to the law of demand.

2. Demand schedule is a table which shows magnitude of demand at various

price. In other words, it is a table which show the different quantities of
commodity which would be bought at various prices. Demand schedule is a table
that shows different quantities of a good or product sought out by consumers at a
range of given prices. Example of individual demand schedule is given in the table
below:

Individual demand schedule

Price per tin Quantity demanded

Number of tin per month

300 5

250 7

200 10

150 15

100 20

Market demand schedule is defined as the total demand schedule for a particular
commodity at various prices.

Market demand schedule

Price per tin Quantity demanded (Number of tin per month)

Abba Baba Kaka Total (Market demand

Schedule)

300 5 10 15 30

250 7 15 20 42

200 10 20 25 55

150 15 25 30 70

100 20 30 35 85

Demand curve
The relationship between price and quantity demanded allows us to define
demand formally as the quantity of a good or service that buyers are willing and
able to buy at every conceivable price. The demand curve (see Figure1.1.below)
shows this relationship graphically. DD shows the quantity of Bone setting
treatments that consumers are prepared to buy at every conceivable price. A
change in price leads to a movement along the demand curve. When the price is P
consumers will buy Q. If the price falls to P' then the quantity demanded will rise
to Q'. A change in price has led to a movement along the demand curve.

It is commonly observed that the quantity of a commodity that people will buy at
any one time depends on its price. The higher the price charged for an article, the
less of it people wil be willing to buy; and other things remaining equal, the lower
its market price, the more units will be demanded (Table 2).

Both the individual and market demand schedule can be illustrated in a diagram
to show an individual and market demand curve. By definition, demand curve
refers to the graphical illustration/representation of demand schedule.

Demand curve: the function that represents the relationship between the price
and the quantity of products or services that consumers are willing to purchase at
any given price point.

Demand curve: A graphical representation of the relatlonship between price and

quantity demanded of a certain good or service, with quantity on the horizontal
axis and the price on the vertical axis.

SUPPLY

DEFINITION OF SUPPLY

 Is the amounts of a good producer are willing and able to sell at a given
price.
 Supply is the willingness of sellers to offer a given quantity of a good or
service for a given price.
SUPPLY CURVE

Supply curve: the function that represents the relationship between the price and
the quantity of products or services that producers are willing to supply at any
given price point.

Supply curve: A line that shows the relationship between price and quantity
supplied on a graph, with quantity supplied on the horizontal axis and price on
the vertical axis

SUPPLY SCHEDULE

Supply schedule is a table that shows different quantities of a good or product

that producers are willing to supply at a range of given prices.

SUPPLY MARKET SCHEDULE

The market supply schedule is a table that lists the quantity supplied for a good or
service that suppliers throughout the whole economy are willing and able to
supply at all possible prices.

EQUILIBRIUM

Equilibrium is the quantity-price point where quantity demanded equals quantity

supplied, and thus produce a stabilized balance between the price and quantity of
a product or service in the market.

Equilbrlum: The situation where quantity demanded is equal to the quantity

supplfed; the combination of price and quantity where there is no economic
pressure from surpluses or shortages that would cause price or quantity to
change.

Equillbrium price: The price where quantity demanded is equal to quantity

supplied

Equilibrlum quantity: The quantity at which quantity demanded and quantity

supplied are equal for a certain price level
Shortage: At the existing price, the quantity demanded exceeds the quantity
supplied; also called excess demand

Surplus: At the existing price, quantity supplied exceeds the quantity demanded;
also called excess supply