Economics, Natural Capital & the Environment

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  • 0:07 Nature's Resources and…
  • 0:58 Natural Capital
  • 1:59 Economics and Natural Capital
  • 3:51 Lesson Summary
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Lesson Transcript
Instructor: Rebecca Gillaspy

Dr. Gillaspy has taught health science at University of Phoenix and Ashford University and has a degree from Palmer College of Chiropractic.

Natural capital is the resources and services derived from nature that are of value to people. Learn why protecting natural capital is important for sustainable growth and economic development.

Nature's Resources and Services

Natural areas of the world have always been popular destinations for travelers and outdoorsmen, but natural environments provide much more value than just scenery and recreation. Forests provide habitats for plants and animals and act as shields against harsh weather. Trees provide wood products used in construction and also absorb carbon dioxide from the atmosphere. And wetlands and soil serve as filters to clean our freshwater supply.

The benefits we gain from our natural environment are too many to count. But how much do we really value the resources and services that come from nature? Because nature provides its goods and services for free, they are often undervalued. In this lesson, we will take a look at how economics are related to the elements found in nature.

Natural Capital

Natural capital is defined as the land, air, water, living organisms and natural resources of the earth that produce value to people. As we see from this definition, natural capital includes both living resources, such as trees, plants, crops and wildlife, as well as non-living resources, such as coal, oil and natural gas.

It is easy to see that the elements of natural capital are essential for human survival. But they are also the foundation of most human economic activities. For example, a country may be rich in oil and have a strong economy because of this natural resource. Of course, if the country exploits its supply of oil and depletes the resource, the country will actually deplete its economic wealth. Therefore, it can be argued that it is in the best interest of countries to assess their natural capital to make better economic decisions.

Economics and Natural Capital

In economics, the term 'capital' typically refers to wealth in the form of some type of asset. When we put the word 'natural' in front of this term, it simply means an asset obtained from nature. And when we start looking, we see that nature has many economically important assets both seen and unseen. Some components of natural capital that are easily seen include mineral deposits, energy resources, farm land, forest timbers, and fisheries.

Other components can be considered 'hidden natural capital.' These components are harder to see and therefore not as easy to assess in terms of economic value. They include air and water filtration, flood protection and maintenance of biodiversity.

Let's take a look at an example to better understand how natural capital relates to economics by examining a forest ecosystem. Forests are an important contributor to the economy because they provide timber resources used for construction.

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