5.8: Conclusion

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Welfare economics lies at the heart of public policy. Demand and supply curves can be interpreted as value curves and cost curves when there are no externalities involved. This is what enables us to define an efficient output of a product, and consequently an efficient use of the economy's resources. While efficiency is a central concept in economics, we must keep in mind that when the economic environment changes so too will the efficient use of resources, as we illustrated in Section 5.7.

In this chapter we have focused on equity issues through the lens of GHG emissions. The build-up of GHGs in our atmosphere invokes the concept of intergenerational equity: The current generation is damaging the environment and the costs of that damage will be borne by subsequent generations. Hence it is inequitable in the intergenerational sense for us to leave a negative legacy to succeeding generations. Equity arises within generations also. For example, how much more in taxes should the rich pay relative to the non-rich? We will explore this type of equity in our chapter on government.