What Is the Relationship between Natural Resource and Environmental Economics?

Osmand Vitez

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.

Natural resources are anything taken from the earthen environment and used to create goods or services used by individuals.
Natural resources are anything taken from the earthen environment and used to create goods or services used by individuals.

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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Discussion Comments


@serenesurface-- It's true that natural resources are very important. For many countries in the world, most of their GDP comes from natural resources and the products they produce from them.

I think the issue that you are referring to when it comes to OPEC is that we have states in the world and these states own the natural resources on their land. Organization of the Petroleum Exporting Countries' member states are all countries with petroleum. So it's not like they're taking others' natural resources. They are merely keeping petrol prices stable by deciding how much to put out into the international market.


@ddljohn-- Is this why OPEC controls all of the petrol in the world? Is it to strategically determine which nations have access to this vital natural resource?

I find it strange how nations are only valued to the extent that they have important natural resources. Nations without natural resources (or resources that haven't been discovered yet) seem to be doomed both economically and politically.


The importance of natural resources in an economy became apparent to nations very early on. In fact, limiting or restricting a nation's access to a natural resources had become a tactic in times of war. Nations tried to prevent their adversaries from getting hold of the natural resources, especially metals and oil, to win the war. This method can even be used to try and trigger market failure in a nation.

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