Value of scarce resources

PUBLISHED : Monday, 20 October, 2008, 12:00am
UPDATED : Monday, 20 October, 2008, 12:00am

Money can help the planet in different ways. Money gives value to things.

If, for example, rice was free, people would tend to pay less attention to it, possibly leading to huge wastage.

The law of demand and supply - how many people want to buy and how much is for sale - helps value scarce resources at a higher price. Money also allocates resources. Imagine there were two types of rice: green and blue. The blue rice was difficult to produce, but slightly better than the green variety.

People would not be too keen to grow blue rice because the green rice would bring in more profits. Hence, investors - who would always support projects that bring in more money - would create more green rice farms.

But resources can be wasted if some crucial costs are overlooked. For many years, the cost of pollution was ignored by finance people.

But gradually, economists started to measure 'externalities' - the impact certain activities have on others, including the cost of the negative impact on the environment.

Some countries have introduced 'ecotaxes' to make polluters pay more and give a better idea of their costs.