Chapter 10 Flashcards
What is a nonrenewable resource?
Resources in fixed supply like oil, coal, or mineral.
what are renewable resources?
Biological resources for which there is a natural growth function.
What are ecosystem services?
Benefits that people obtain from nature.
What are the 4 types of ecosystem services?
- Provisioning Services: the products obtained from ecosystems (renewable and non).
- Regulating Services: the benefits derived from ecological processes controlling the flows of water , carbon, nutrients, and energy though ecosystems.
- Supporting Services: the underlying support systems or “natural infrastructure” that allows everything to continue to function.
- Cultural Services: the non material benefits derived from nature including ecotourism, recreation, and spiritual inspiration.
What is the Hotelling model?
A model of non renewable resource development. It predicts that over time price would rise, as quantity declines.
- If a firm sells the resource and puts the money in the bank, they earn interest.
- A resource in the group does not earn interest unless the price of the resource is likely to rise over time.
- This leads to Profit-Based Conservation.
What is the formula for Hotelling’s rule?
R = (P2-P1)/P1
This means that the percentage increase in the resource price (P2-P1)/P1 will equal the interest rate.
What are the take always from using the Hotelling rule?
- Those who own resource stock will earn a positive resource rent.
- With a positive interest rate, the price of the non renewable resource will increase through time.
- If demand is constant across periods then a rising price means falling consumption through time.
This model is efficient: a resource is allocated over time in a way that maximizes the present value of its use.
In terms of the Hotelling model, what happens when a resource is produced at a constant marginal cost of $c per unit.
An increase in cost, or a fall in demand, will cause resource rent to decline.
Lower resource rents tend to lead towards more equal distribution of production over time.
Hotelling suggests that nonrenewable recourse prices tend to rise and quantities tend to fall. Explain two possible explanations as to why from 67-01 there was a downward trend in prices of nonrenewable resources?
- Even though there will be scarcity of the resources some time in the future, it is still too far off for it to factor into either consumer or firms’ behaviour.
- As technology steadily advances, lower grade ores can be mined cost-effectively, shifting the supply curve down.
What is peak oil? What is happening to peak oil in terms of the supply peak and scarcity?
When oil production hits its high and starts to decline.
- No evidence of a supply peak any time soon, but there could be a demand peak because of EVs.
- No market signal of long run scarcity.
What is a sustainable harvest?
One that does not exceed natural growth so that the renewable resource stock increases or remains the same.
What is a growth function?
We represent the fact that renewable resources grow with a growth function, which expresses growth in new units per period as a function of the size of the existing resource stock.
What is the golden rule?
The golden rule tells the resource manager to keep increasing the harvest until the growth rate of the stock is driven down to r, the discount rate.
If the discount rate is 0, the golden rule and the maximum sustainable yield will result in the same harvest.
In what case could we drive resource stocks to extinction? How can we prevent this from happening?
If the discount rate is really high or the resource is very slow growing.
Factors that could prevent this from happening:
1. As a species gets rarer and harvests decline, its price will tend to rise.
2. Species often have value independent of harvest (existence value).
