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 Indicate relative scarcity of different resources Indicate which scarcity is more problematic Offers computability Uses readily available or easily obtainable data for calculations

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

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

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

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

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 D Q $ MEC MEC+MUC P q1 At q1, MUC = P - MEC

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

Factors Mitigating Scarcity Substitution Substitute abundant resources for scarce ones

X Y F 1, Q 1 Fixed-proportion isoquant Q 1 = one (edible) 8” pie crust X = flour Y = shortening Possibilities for Input Substitution

X Y F 1, Q 1 Fixed-proportion isoquants Q 2 = two (edible) 8” pie crusts X = flour Y = shortening F 2, Q 2

X Y Fixed-proportion production functions: F 1, Q 1 If availability of resource X declines, then the availability of Q necessarily declines. Substitution is not an option for retaining same level of Q.

X Y S 1, Q 1 Q 1 = one pint of salad dressing X = oil Y = vinegar

X Y S 1, Q 1 Substitutability in production: If the availability of resource X declines, the availability of Q may not be affected. Substitution of Y for X may allow for retaining same level of Q.