What Is the Relationship Between Natural Resource and Environmental Economics?

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  • Written By: Osmand Vitez
  • Edited By: PJP Schroeder
  • Last Modified Date: 07 December 2014
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Natural resources represent anything taken from the earthen environment and used to create goods or services used by individuals. Environmental economics is a subfield that deals specifically with the use of natural resources in an economy. The relationship between natural resource and environmental economics is quite clear as you cannot have one without the other. For example, an environmental economic study might look at alternative fuels using ethanol or wind, land use for waste placement, or the improvement of land where natural resources were taken for use by individuals or businesses. This relationship between natural resource and environmental economics tends to grow with economies as the demand for resources increases in a market.

One particular study found within environmental economics is the concept of market failure. This failure often represents the inability for a market — whether free or command — to improperly allocate natural resources among users. Market failure can occur in a given economy due to limited or scarce resources, that is, a situation where there is not enough material to go around for all users. Studies on natural resource and environmental economics look to define what internal or external factors caused the situation to occur as many different reasons can result in scarce resources. These studies are quite common in markets or countries with limited natural resources that must effectively and efficiently distribute these items.


Another connection between natural resource and environmental economics is the study of environmental regulations on a given market. For example, limited resources — especially items such as clean water, fresh air, and scarce land — make it important for all individuals to have access to these items. Letting one or a few individuals use these resources or damage them so others cannot use them can have grave consequences in a market. Many users believe an external agency, such as a government body, should regulate the use of natural resources in order to limit negative issues that arise. The study of regulations and their impact on a market are of importance, so individuals can still operate in the best manner possible in the economy.

In some cases, one country may choose to not engage in business with another country that does not respect the environment. Natural resource and environmental economics may attempt to create a morally or socially justifiable society with regards to the economic use of goods. Failure for one country to abide by these guidelines may result in a shunning of that country. Again, the study of this impact is often necessary to determine the impact of such regulations or restrictions.


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