Generalized Resource Scarcity

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Generalized Resource Scarcity

• Monday, April 24

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Indicators of Scarcity

• Physical indicators
• Resource prices
• Scarcity rent
• Marginal discovery cost
• Marginal extraction cost

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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

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Issues for indicators of scarcity

• Physical indicators
• Foresight
• Comparability
• Computability
• Resource prices
• Foresight
• Comparability
• Computability

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The Bet

• Biologist Paul Ehrlich and economist Julian Simon
• 200 investment
• Copper, chrome, nickel, tin and tungsten

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Issues for indicators of scarcity

• Scarcity rent
• Foresight
• Comparability
• Computability
• Marginal discovery cost
• Foresight
• Comparability
• Computability

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Issues for indicators of scarcity

• Marginal extraction cost
• Foresight
• Comparability
• Computability

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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

MECMUC
P
At q1, MUC P - MEC
MEC
D
q1
Q
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Factors Mitigating Scarcity

• Technological Progress
• Lower cost of extraction
• More productive processes

MECMUC
P
MEC
D
Q
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Factors Mitigating Scarcity

• Substitution
• Substitute abundant resources for scarce ones

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Possibilities for Input Substitution
X
Fixed-proportion isoquant Q1 one (edible) 8 pie
crust X flour Y shortening
F1, Q1
Y
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X
F2, Q2
Fixed-proportion isoquants Q2 two (edible) 8
pie crusts X flour Y shortening
F1, Q1
Y
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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
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X
S1, Q1
Q1 one pint of salad dressing X oil Y vinegar
Y
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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