FOUNDATIONS OF QUANTITATIVE METHODS FOR

SUSTAINABLE ORGANISATIONS - BA1510

Sustainable organisations
In this course we will look at the following interconnected factors that
determine the long-term sustainability of organisations
• Economic factors
• Social factors
• Ecological factors
• Governance factors

Syllabus
• Markets
• Externalities
• Natural resource economics theory
• Incentive regulation
• Sustainability and climate change
• Sustainable economic development
• Economies of sustainable local communities
• Sustainable production and consumption
• Corporate social responsibility in a global context

The course is designed so that it is accessible to those who may have little in
the way of an economics background.
Introduction
“There are political and business leaders who do not care if economic growth
causes environmental damage and there are environmental advocates who do
not believe you can have economic growth without causing environmental
damage.” (Cohen, 2020)

Economic and environmental systems interact in many important ways.

Traditionally, economists learned very little about the environment, and
environmental scientists and resource managers learned very little about
economics but now an increasing number of economists, scientists, and
resource managers are finding that they need to work in an interdisciplinary
fashion in order to understand these interactions and develop effective
public policy.

In this course we will be covering topics from

Environmental economics: Analyses the economic basis for pollution

problems, as well as the policies designed to resolve pollution e.g., the use
of a carbon tax to penalize industries that emit carbon.

Natural resource economics: Addresses problems of governing common-

pool natural resources such as water, timber, etc., finding optimal rates of
renewable or non-renewable resource extraction, and the workings of
resource and energy markets.

Ecological economics: Focuses on understanding the economics of natural

capital and the ecosystem goods and services that flow from it. Ecological
economics considers global issues like deforestation, greenhouse emissions,
a threat to marine life, ocean pollution etc.

Economics of a sustainable society: Includes efforts at identifying, modelling,

and measuring the contribution of economic activities to ensure a
sustainable society. Sustainability studies focus on understanding the
interactions between economy, community, and environment over the long
term, and on using this information to fashion policies that move us closer to
a sustainable society e.g., creating systems that minimize waste such as
recycling.
Table of Contents
Some fundamental economic concepts ..............................................................................4
What is economics? ................................................................................................................. 4
Falsely equating economics with commercial activity..................................................................................4
Definition: ......................................................................................................................................................4

Scarcity ................................................................................................................................... 4
Problem caused by scarcity/Main economic problem .................................................................................4

Concept of utility ..................................................................................................................... 6

Economic rationality ................................................................................................................ 6
Rational consumer ........................................................................................................................................6
Rational firm ..................................................................................................................................................6

Opportunity cost ..................................................................................................................... 6

Example .........................................................................................................................................................7
Production possibility frontier (PPF) ......................................................................................... 7
Bibliography .....................................................................................................................9
Some fundamental economic concepts
What is economics?
Many people approach economics with a preconceived notion of what
economics is about. An example is the common tendency to equate
economics with commercial activity and the stock market.

Falsely equating economics with commercial activity

While economics is a very broad field of study, there is a tendency to more
narrowly equate economics with commercial activity. For example, consider
the following hypothetical headline:
“The decision to manage a segment of national forest as wilderness rather
than as a timber production area is a rare example of the environment winning
out over economics.”
The headline writer's insinuation that wilderness values are non-economic and
that commerce is being mistaken for economics is incorrect. It fails to
acknowledge the fact that wilderness areas offer essential ecosystem services
and natural resources that extend beyond their boundaries. These include
clean air, fresh water, wildlife, and plants. These valuable benefits of
wilderness are just as economic as the cost of a ticket to Disneyland or the
profits gained from a timber harvest. (Hackett, 2006) While markets are a good
way of making allocation choices in the context of scarcity, economics
encompasses the study of both, market and nonmarket, allocation of scarce
resources. We will develop a clearer understanding of what economics is
about.

Definition: Economics is the study of how scarce resources, goods, and

services are allocated among competing uses.

Scarcity: It is the state when resources are scarce or short in supply. Scarcity
means not having enough of something to fulfill all demands.

Problem caused by scarcity/Main economic problem

The key issue in economics is that there are unlimited needs and wants while
resources are limited or scarce, this forces us to make a choice among the
available alternatives.
Economy or minimization of waste occurs when resources are allocated to
their highest-valued use. Thus, at the center of economics is scarcity. The
condition of scarcity implies that not all goals can be attained at the same
time. Some examples of scarce resources are:
• A candy bar offered to a group of kids
• The time you have in a one day
• Old-growth trees in a national forest
• Your income
• Clean water
• Fish in a fishery
• Your attention
• Tax revenues
In all of the examples given above, consumers are forced to choose how to
utilize the resources due to their scarcity. Since so many aspects of our world
involve choices necessitated by a condition of scarcity, economics is
fundamental and ever-present in almost everything we do, whether we are
aware of it or not. For example, when you choose to buy a cup of coffee over a
cup of tea, that choice is an economic decision.

The problem of scarcity raises three economic questions which are answered
as follows
1. What to produce?
The goods and services demanded by the consumer.
 2. How to produce?
Using the least-cost production technology.
3. For whom goods and services are produced?
Those consumers with the willingness to pay

Concept of utility
Economic analysis requires a system of value from which we can compare
alternatives and so distinguish allocations that give us maximum level of
satisfaction. Thus, we assign a certain value of satisfaction to each alternative
which we call utility. Suppose
Utility(a cup of coffee) = 10
Utility(a cup of tea) = 8
These numbers don’t mean anything, they only show that you derive more
utility from coffee than from tea.
Every day you make economic choices that involve ranking alternatives. Much
of government policy-making involves the ranking of alternatives. Since people
have different values, the best economic choice for one is not necessarily the
best for another as in the case of drink choices some people might prefer a tea
over coffee or vice versa.

Economic rationality
Economic rationality refers to choices made in the context of scarcity where
the benefits to the decision maker are maximized.
Rational consumer: In the context of markets, a consumer is said to be
rational if she/he wishes to maximize their overall level of satisfaction, or
utility.
Rational firm: While firms are said to be rational if they wish to maximize
their profits.

Opportunity cost
Opportunity cost represents the potential advantages that a business, an
investor, or an individual consumer foregoes when choosing one alternative
over another. Although opportunity costs cannot be calculated with
certainty, taking them into consideration can lead to better decision making.
Example: Assume the expected return on investment in the stock market is
10% over the next year, the alternative is to invest in new equipment which
would generate an 8% return over the same period. The opportunity cost of
choosing the equipment over the stock market is 2% (10% - 8%). Thus, by
investing in the business through updating equipment, the company would
forgoe the higher return on stock market investment. However, this can yield
higher return to the company in the future. Thus, bearing the opportunity
cost can be beneficial in the long run.

Everything that is scarce and so requires an allocation choice has an

opportunity cost. We can evaluate the rationality of a particular choice by
comparing the benefits that it generates relative to its opportunity cost.

The concepts of scarcity and opportunity cost can be illustrated in a

production possibilities frontier.

Production possibility frontier (PPF)

Figure 1: Production possibility frontier(PPF), (Hackett, 2006)

The PPF in Figure 1 represents all the possible combinations of food and
clothing that can be produced in a given time period when available resources
are fully and efficiently employed. As we move along the PPF and increase the
production of one good, such as clothing, we must shift resources away from
producing the other good, food. The opportunity cost of a given increase in
clothing is reflected in the amount of food (and the value we place on it) that is
given up to produce more clothing. For example, the movement from point B
to point D.

Each additional unit of clothing production entails a larger and larger

opportunity cost, as resources that are more productively deployed for food
production are redirected to clothing production. In economics this is
referred to as the Law of Increasing Opportunity Cost.
Bibliography
Cohen, S., 2020. Columbia Climate School, State of the Planet. [Online]
Available at: https://news.climate.columbia.edu/2020/01/27/economic-
growth-environmental-sustainability/

Pettinger, T., 2021. Environmental impact of economic growth. [Online]

Available at:
https://www.economicshelp.org/blog/145989/economics/environmental-
impact-of-economic-growth/ - :~:text=The environmental impact of
economic,cause damage to the environment.

Hackett, S. C., 2006. nvironmental And Natural Resources Economics. In:

Environmental And Natural Resources Economics Theory, Policy, And the
Sustainable Society - 3rd Edition by. New York: M.E. Sharpe, Inc., p. 31.

Hackett, S. C., 2006. nvironmental And Natural Resources Economics. In:

Environmental And Natural Resources Economics Theory, Policy, And the
Sustainable Society - 3rd Edition by. New York: M.E. Sharpe, Inc., p. 9.