Saving the Environment with Economic Ideas

Saving the Environment with Economic Ideas is a set of lessons for high school that provide students with the opportunity to participate in simulations. These simulations demonstrate the potential results of economic-related actions and policies taken and made by the government, businesses, or individuals to conserve and protect many of the natural resources used in the production and consumption of goods and services. Students see in action concepts such as resource allocation, scarcity, value, property rights, negative externalities, and emissions taxes and are encouraged to have lively discussions about what they observe and apply it in various situations. Engaging students in hands-on simulations and application of real environmental concerns helps students learn and analyze how economics plays a significant role in developing ideas and solutions that are put into action to save the environment.

Download the complete curriculum unit or individual lessons.

Lesson 1: Water Rights: Managing the Colorado Water System

Lesson 1 addresses an important question: Why is a price system the best way to allocate natural resources? The lesson sets the stage by describing the competing demands for Colorado River water. The students then simulate a river by passing a pitcher of water down a line of students. Each student must decide how much water to take. They are given a number of scenarios that change their incentives to take water from the river. The remaining students act as economists and calculate the water usage’s total value to society. The students discover that when something is appropriately priced, its total value is maximized under a price system. The lesson ends with a section on what might impact the choice of an appropriate price.

Lesson 2: Property Rights

Lesson 2 provides a quick illustration of the Coase Theorem using a lake-pollution activity. The theorem explains that externalities like pollution in a lake can be resolved through two parties (the polluter and the user of the lake) bargaining with each other. The results of the bargaining will be what is best for society. The lesson highlights two points. First, the fate of the lake (whether it will be clean or polluted) does not depend on who owns the lake. If the user owns the lake and the polluter values a polluted lake more than the user values a clean lake, the polluter will pay the user to compensate for polluting the lake. If the polluter owns the lake and the user does not value a clean lake enough to pay the polluter to not pollute the lake, then the lake will be polluted. Second, while the fate of the lake does not depend on who owns the lake, ownership of the lake is important in one very important way: The lake has value, so whoever has rights to the lake will be wealthier.

Lesson 3: Marginal Analysis: How Clean Is Clean Enough?

Lesson 3 starts with a simulation in which the students clean up rugs dirtied with paper towels, beans, and paper bits/glitter. The students realize that in order to get the rugs cleaner, the marginal costs of doing so increase. In the simulation, three cups of pollution are placed on each rug. The first cup of balled-up paper towels is easily cleaned up. However, the second cup of beans takes longer to clean up. Finally, the third cup of paper bits and glitter, all remaining pollution, takes a long time to clean up. The students then use the data from the simulation to construct a demand for pollution. In other words, they understand that firms are willing to pay to dispose of pollution into the environment instead of paying to clean their waste. The students observe that if the price for polluting is high, then firms will clean their waste and emit less into the environment. If the price is low or free, then firms will do little to reduce the waste they dispose of into the environment. The students end the lesson with an activity that illustrates when it’s a good idea to clean up a lot of pollution and when it’s OK to let some pollution into the environment.

Lesson 4: Supply and Demand of Pollution

While it can be done independently, Lesson 4 builds on the demand for pollution disposal illustrated in Lesson 3. The students begin by understanding that if a price is charged to dispose of pollution into the environment, then the result is a demand for pollution disposal. At high prices, a firm will clean more of its waste and release less pollution into the environment. At low prices, a firm will clean less of its waste and release more into the environment. Students are then introduced to two ways to regulate pollution through market-based systems: In a cap-and-trade system, the supply of pollution is illustrated with a vertical (perfectly inelastic) supply curve. In a permit system, the supply of pollution is illustrated with a horizontal (perfectly elastic) supply curve. The lesson concludes by examining what happens when the supply or demand of pollution disposal changes.

Lesson 5: The Emissions Simulation

The emissions simulation in Lesson 5 puts students in the roles of firms. Each firm must decide how much pollution to release into the environment. The simulation goes through a number of rounds: The firms can pollute without any charges; the firms are not allowed to pollute at all; the firms pay an emissions tax to pollute; the firms receive a non-tradeable permit to pollute; and the firms receive a tradeable permit to pollute. The students should learn that (a) no pollution control or no pollution allowed at all are generally costly solutions, (b) trading pollution permits allows firms to find the lowest costs, and (c) both an emissions tax system and a tradeable permit system minimize the costs to society of cleaning up pollution. The simulation reinforces the idea that using a price system (whether a tax or a permit) results in the lowest-cost method of controlling pollution among a large number of firms.

Lesson 6: Green Is the New Gold

The fun simulation in Lesson 6 challenges students to figure out the best way to create a product from resources with the least amount of waste. The lesson emphasizes that being green is not just something businesses do to adhere to regulations, but it’s something that can be profitable as well.


This lesson received the 2021 Curriculum Silver Award from the National Association of Economic Educators.
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