The document discusses the material balance model formulated by Allen Kneese and R.V. Ayres, emphasizing the interconnectedness of the economy and environment through a balanced flow of inputs and outputs. It highlights the generation of residuals or waste during production and consumption processes, which can lead to ecological and social costs, unless all inputs are fully converted into outputs. Moreover, the model underscores the importance of the environment in providing resources and services, suggesting that economic activities inevitably impact environmental health.

1. Material Balance Model
Sr.Sindhu P.J( Sr.Sharin CTC)
Assistant Professor
Department of Economics
St.Xavier’s College for Women, Aluva

2. Material Balance Model
Allen Kneese and R.V Ayres
The relationship between the
environment and the economy
The model visualizes the total
economic process as a physically
balanced flow between inputs and
outputs.

3. According to Ayres and Kneese, “If waste
assimilative capacity of the environment
is scarce, the decentralized voluntary
exchange process cannot be free of
uncompensated technological external
diseconomies unless all inputs are fully
converted into outputs, with no
unwanted material residuals along the
way and all final outputs are utterly
destroyed in the process of consumption.”

4.  Nature provides raw materials to the economy
for its production and consumption activities.
 Residuals (wastages) from both the production
and consumption processes usually remain and
they usually render disservices like killing fish,
reducing public health, soiling and
deteriorating buildings due to industrial
pollution.
 A major part of residual generated are
absorbed and recycled by the nature.
 The remaining wastages cause social cost and
aforesaid disservices.
 Further, all emission of residuals do not cause
pollution damage because of assimilative
capacity of the environment.

5. • Further, energy taken out of the
environment must be given into the nature
in some or other form.
• Even though waste energy cannot be
recycled but waste materials can be used for
various purposes. It means that economic
activity always affects environment in a
direct or indirect manner.
• Thus all inputs (fuels, raw materials, water
and so forth) used in the economy’s
production processes will ultimately result in
an equivalent residual or waste.

6. The model is explained in the Material Flow diagram

7. The material flow diagram implies that mass
inputs must equal mass outputs for every
process. At the same time, all resources
extracted from the environment must
eventually become unwanted wastes and
pollutants.
Materials recycled are useful but recycling is
energy intensive and imperfect, so it cannot
fully compensate. Hence, the materials
balance model provides a useful framework
for analyzing alternative methods of resource
and residuals management of resources and
the residuals.

8. The Material Balance Model depicts the major
functions performed by the environment.
• Environment supplies renewable and non-
renewable resources
• Environment assimilates residuals either by
absorbing them or dispersing them
• Environment provides life support services by
maintaining ecological balance and genetic
diversity.
• Environment provides natural services such as
aesthetic enjoyment and recreation.

9. All these functions have positive
economic value. If the environment
fails to perform any of these functions,
the real ‘environmental crisis’ takes
place. Thus the economy and
environment are closely related.