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Generalized Resource Scarcity

Generalized Resource Scarcity. Monday, April 24. Indicators of Scarcity. Physical indicators Resource prices Scarcity rent Marginal discovery cost Marginal extraction cost. A good indicator of scarcity:. Provides foresight Anticipate, not just report Provides comparability

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Generalized Resource Scarcity

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  1. Generalized Resource Scarcity Monday, April 24

  2. Indicators of Scarcity • Physical indicators • Resource prices • Scarcity rent • Marginal discovery cost • Marginal extraction cost

  3. A good indicator of scarcity: • Provides foresight • Anticipate, not just report • Provides comparability • Indicate relative scarcity of different resources • Indicate which scarcity is more problematic • Offers computability • Uses readily available or easily obtainable data for calculations

  4. Issues for indicators of scarcity: • Physical indicators • Foresight • Comparability • Computability • Resource prices • Foresight • Comparability • Computability

  5. The Bet • Biologist Paul Ehrlich and economist Julian Simon • $200 investment • Copper, chrome, nickel, tin and tungsten

  6. Issues for indicators of scarcity: • Scarcity rent • Foresight • Comparability • Computability • Marginal discovery cost • Foresight • Comparability • Computability

  7. Issues for indicators of scarcity: • Marginal extraction cost • Foresight • Comparability • Computability

  8. Factors Mitigating Scarcity • Exploration and Discovery • Search for more of a resource until the marginal discovery cost of an additional unit equals the marginal user cost (marginal rent) of the unit $ MEC+MUC P At q1, MUC = P - MEC MEC D q1 Q

  9. Factors Mitigating Scarcity • Technological Progress • Lower cost of extraction • More productive processes $ MEC+MUC P MEC D Q

  10. Factors Mitigating Scarcity • Substitution • Substitute abundant resources for scarce ones

  11. Possibilities for Input Substitution X Fixed-proportion isoquant Q1= one (edible) 8” pie crust X = flour Y = shortening F1, Q1 Y

  12. X F2, Q2 Fixed-proportion isoquants Q2= two (edible) 8” pie crusts X = flour Y = shortening F1, Q1 Y

  13. Fixed-proportion production functions: X If availability of resource X declines, then the availability of Q necessarily declines. F1, Q1 F2, Q2 Substitution is not an option for retaining same level of Q. Y

  14. X S1, Q1 Q1= one pint of salad dressing X = oil Y = vinegar Y

  15. Substitutability in production: X If the availability of resource X declines, the availability of Q may not be affected. S1, Q1 Substitution of Y for X may allow for retaining same level of Q. Y

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