Question 1

When we look at the relationship between resources and economic growth from a worldwide perspective, trade is irrelevant, at least for the foreseeable future. How so?

Accepted Answer

Unlike a single country, the world cannot make up for a short-age of natural resources by importing. Thus, although a lack of natural resources may not put one country at a disadvantage relative to others, natural resource shortages could be a problem for the world as a whole.

Question 2

In our analysis of the interaction of resources and economic growth, we stress three related concepts. What are they?

Accepted Answer

- Substitution - Prices - Property rights

Question 3

When does substitution occur?

Accepted Answer

Substitution occurs when firms or consumers switch from using scarce resources to abundant resources.

Question 4

What do resource prices signal?

Accepted Answer

Resource prices signal a resource’s scarcity to resource users (who will attempt to find substitutes) and to resource producers (who will attempt to produce more).

Question 5

When is the impact of natural resource scarcities on the economy limited?

Accepted Answer

When this mechanism linking property rights, prices, and substitution functions properly, it automatically limits the impact of natural resource scarcities on the economy. In cases in which this mechanism breaks down, natural resource shortages pose their most severe threat to economic growth.

Question 6

When is the impact of natural resource scarcities on the economy limited?

Accepted Answer

When this mechanism linking property rights, prices, and substitution functions properly, it automatically limits the impact of natural resource scarcities on the economy. In cases in which this mechanism breaks down, natural resource shortages pose their most severe threat to economic growth.

Question 7

What is a nonrenewable resource?

Accepted Answer

One that exists in a fixed quantity on the earth. When a nonrenewable resource is consumed, it is gone forever.

Question 8

What is a common measure of the availability of a nonrenewable resource?

Accepted Answer

The level of current reserves, or the known quantity of the resource that can profitably be extracted at current prices using existing technology.

Question 9

Changes in the quantity of current reserves are brought about through four processes. What are the first two such processes?

Accepted Answer

Discoveries of new stocks of the resource raise reserves and depletion of existing stocks lowers reserves.

Question 10

Changes in the quantity of current reserves are brought about through four processes. What' the third such process?

Accepted Answer

The third way in which reserves can change is when the price of the resource changes: for example, if the price rises, then known deposits that were previously not worth extracting can become economically viable, increasing reserves.

Question 11

Changes in the quantity of current reserves are brought about through four processes. What' the fourth such process?

Accepted Answer

Changes in technology can also make it worthwhile to extract a resource from a known deposit, even if the resource’s price has not changed.

Question 12

What is peak oil?

Accepted Answer

The term peak oil is used to refer to the date when world production reaches its maximum. Estimated dates for when peak oil will be reached vary widely but years in the range 2020–2030 are often mentioned.

Question 13

What is a renewable resource?

Accepted Answer

A renewable resource is one that is replenished by natural processes and thus can be used repeatedly.

Question 14

Some renewable resources are not affected by the quantity that humans use. What is the simplest example?

Accepted Answer

Sunlight. The amount of sunlight available every year is roughly the same, and the amount that humans use in any given year does not affect the amount that will be available in future years.

Question 15

For other renewable resources, the situation is more complex. With respect to plants and animals, for example, what does the amount of the resource that is available at any time depends on?

Accepted Answer

Past consumption. Although these resources can regenerate themselves, the speed with which they do so depends on usage. If too much of such resources is used at any one time, they may not be able to renew themselves in the future. Thus, it is possible to overuse renewable resources.

Question 16

How can we construct a simple mathematical framework to illustrate the process of depleting natural resources?

Accepted Answer

We define St as the resource stock at the beginning of period t, Ht as the quantity of the resource harvested in period t, and Gt as the quantity that grows in period t. The change in the stock from period to period is the difference between the amount of the resource that grows and the amount that is harvested. That is: ΔSt = St+1 – St = Gt – Ht.

Question 17

The growth of the resource is a function of which two variables?

Accepted Answer

The existing stock of the resource, S, and the carrying capacity of the environment, which is the largest quantity of the resource that would exist in nature if humans never harvested the resource.

Question 18

If the stock of the resource is equal to the carrying capacity of the environment, what is growth?

Accepted Answer

If the stock of the resource is equal to the carrying capacity of the environment, then growth will be zero because there is no room for additional growth of the resource. Thus, when we are considering levels of the resource stock that are close to the carrying capacity of the environment, lower resource stocks will lead to higher growth. But if the resource stock is too low, then a second factor sets in—the rate at which the stock can grow depends on the quantity of the stock. In the case of fish or animals, for example, if so few members of a species remain in an environment that breeding pairs cannot find each other, then no regeneration of the stock will occur.

Question 19

Thus, when we are considering levels of the resource stock that are close to the carrying capacity of the environment, lower resource stocks will lead to higher growth. But if the resource stock is too low, then a second factor sets in. What is it?

Accepted Answer

The rate at which the stock can grow depends on the quantity of the stock. In the case of fish or animals, for example, if so few members of a species remain in an environment that breeding pairs cannot find each other, then no regeneration of the stock will occur.

Question 20

Figure 16.2 summarizes this discussion with a hump-shaped curve that shows the growth of a renewable resource as a function of its stock. How does the exact shape of this curve depends on the resource being considered?

Accepted Answer

For species that can reproduce rapidly to fill up an environmental niche, the peak of the curve (the maximum amount of growth) will occur when the stock is small relative to the carrying capacity. For species that naturally reproduce slowly, the maximum growth will be at a higher level of the stock relative to the carrying capacity—in other words, the peak of the curve will shift to the right.

Question 21

What is the peak of the curve representing growth of resource per period, G, as a function of the stock of the resource, S called and what does it represent?

Accepted Answer

The peak of the curve is called the maximum sustainable yield, which is the largest quantity of the resource that can be harvested per period of time without diminishing the quantity of the resource available for future use. Corresponding to the maximum sustainable yield is an optimal stock of the resource, S .

Question 22

For a resource that has not been used at all, what will the stock be equal to? the carrying capacity. If the resource is then harvested at the maximum sustainable yield, the stock will decline temporarily before stabilizing at the optimal stock, S . However, if the harvest of the resource is greater than the maximum sustainable yield for too long a period of time, the stock will fall below S and eventually reach 0. Further, once the stock of a resource has moved below S , the stock cannot be restored simply by reducing the harvest to equal the maximum sustainable yield. Rather, a period of harvesting below the maximum sustainable yield is required to restore the stock of the resource to the optimal level.

Accepted Answer

The carrying capacity.

Question 23

If the resource is then harvested at the maximum sustainable yield, what will happen to the stock?

Accepted Answer

The stock will decline temporarily before stabilizing at the optimal stock, S .

Question 24

If the resource is then harvested at the maximum sustainable yield, the stock will decline temporarily before stabilizing at the optimal stock, S . However, if the harvest of the resource is greater than the maximum sustainable yield for too long a period of time, what will happen?

Accepted Answer

The stock will fall below S and eventually reach 0. Further, once the stock of a resource has moved below S , the stock cannot be restored simply by reducing the harvest to equal the maximum sustainable yield. Rather, a period of harvesting below the maximum sustainable yield is required to restore the stock of the resource to the optimal level.

Question 25

On top of over-fishing, what is another important renewable resource that is vulnerable to overuse?

Accepted Answer

Underground aquifers containing fresh water that can be pumped to the surface. Aquifers from which a moderate amount of water is pumped will be naturally recharged as rainwater percolates through the soil above them. However, pumping too much water at once can render the aquifer unusable.

Question 26

Resources can be classified according to the degree of control that individuals, corporations, or governments can exert over their use. Describe the spectrum of property rights.

Accepted Answer

At one end of the spectrum are land and minerals, which are generally covered by well-established property rights. At the other end of the spectrum are fish in the sea, which are subject to little or no ownership.

Question 27

How does the degree to which a resource is covered by property rights affects how it is used?

Accepted Answer

Resources not covered by property rights are susceptible to inefficiently high rates of use.

Question 28

Resources not covered by property rights are susceptible to inefficiently high rates of use. How so?

Accepted Answer

In the case of nonrenewable resources, overrapid depletion results. For a renewable resource, the consequence is extraction beyond the maximum sustainable yield.

Question 29

What is a common theme under both renewable and nonrenewable resources?

Accepted Answer

In both cases, the absence of property rights takes away a producer’s incentive to limit present production to increase future stocks.

Question 30

Describe an instance (or two) where the absence of property rights takes away a producer’s incentive to limit present production to increase future stocks.

Accepted Answer

For example, a fisherman who reduced his catch so as to maintain the stock of fish for the future would most likely see others harvest these fish. Similarly, if more than one person has the right to exploit a nonrenewable resource, each will have an incentive to use it quickly, before someone else does.

Question 31

What is the tendency to overexploit resources to which there are no property rights called?

Accepted Answer

The tragedy of the commons.

Question 32

What is one solution to the tragedy of the commons?

Accepted Answer

To establish property rights.

Question 33

Assigning private property rights is not always practical, however. An alternative to private property rights is control of the resource by government or some other authority that can take into account the negative externality that results from the use of the resource. What does the proper management of a commons require?

Accepted Answer

Proper management of a commons requires an authority that has not only the wisdom and honesty to decide how much of the resource should be used, but also the wherewithal to enforce such decisions. Often, when resources are over-exploited, one of these prerequisites is lacking.

Question 34

The most severe cases of the tragedy of the commons occur when resources do not fall under the control of any single government. In the world today, what are the two most important resources in this category?

Accepted Answer

The ocean and the atmosphere.

Question 35

How is atmosphere pollution like resource depletion?

Accepted Answer

Because no one "owns" an unpolluted atmosphere, there is a tragedy of the commons in which producers abuse their ability to dump pollutants into the atmosphere.

Question 36

What is a useful idea for thinking about the role of resources in production?

Accepted Answer

The resource intensity of production, that is, the amount of a resource required to produce a unit of output.

Question 37

Use the concept of resource intensity to examine how economic growth, population growth, and the growth of resource use are related.

Accepted Answer

Define y as GDP per capita, L as the size of the population, I as resource intensity, and R as resource consumption. The definition of resource intensity is I = R/yL euqivalently R = IyL

Question 38

Rewrite R=IyL in terms of growth rates, denoted ^.

Accepted Answer

R^ = I^ + y^ + L^ Where ^ represents growth rate. This equation says, for example, that if output per capita is growing at 1% per year, population is growing at 1% per year, and resources intensity is constant, then total resource use will grow at 2% per year.

Question 39

The equation R^ = I^ + y^ + L^ can also be turned around and used to illustrate how resource limitations affect economic growth. For example, assume that the quantity of a resource available for use is constant, as in the case of a renewable resource that is already being exploited at the maximum sustainable yield.

Accepted Answer

This assumption implies that R^ = 0. The previous equation can then be rewritten as: y^ = -I^ - L^ In this form, the equation says that for output per capita to have a positive growth rate, resource intensity must be falling faster than population is growing.

Question 40

Discussion on the relationship between natural resources and economic growth is often organized around which concept?

Accepted Answer

The concept of sustainable development.

Question 41

What is the concept of sustainable development?

Accepted Answer

This term was defined by the 1987 United Nations Commission on Environment and Development (also called the Brundtland Commission, after its chair) as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs.”

Question 42

From an economic viewpoint, there are many problems with implementing the definition of sustainable development presented by the UN. What's the first?

Accepted Answer

Economists do not like to talk about “needs”—especially in the case of rich countries, in which average levels of consumption are a huge multiple of human needs in any biological sense.

Question 43

From an economic viewpoint, there are many problems with implementing the definition of sustainable development presented by the UN. What's the second?

Accepted Answer

By focusing only on whether income in the future will be higher than income today, the definition leaves much out. For example, suppose that the current path of economic growth is sustainable in the sense that future generations will be slightly better off than the current generation. Also, suppose some change in policy would make the current generation only a little worse off but would make those who followed us much better off. Both policies are sustainable, so the sustainability criterion will not help us to choose between them.

Question 44

From an economic viewpoint, there are many problems with implementing the definition of sustainable development presented by the UN. What's the third?

Accepted Answer

It is much easier to apply it in an ex post sense (i.e., looking backward in time) than in an ex ante sense (looking forward).

Question 45

From an economic viewpoint, there are many problems with implementing the definition of sustainable development presented by the UN. Why is it much easier to apply it in an ex post sense (i.e., looking backward in time) than in an ex ante sense (looking forward)?

Accepted Answer

If shortages of natural resources cause declines in the standard of living, then future observers will correctly conclude that the economic growth we are now experiencing was unsustainable. By contrast, if world income per capita grows steadily over the next 200 years, then it will clearly be true that today’s economic development was sustainable. Because we can not see into the future, it is hard to know which of these scenarios will happen.

Question 46

Throughout our study of growth, we have used data on gross domestic product (GDP). The measurement of GDP is part of a broader analytic framework called national income accounting, which was created by economist Simon Kuznets in the 1930s. In recent years, some scholars have tried to extend the system of national income accounting to take into account issues such as resource depletion and environmental degradation. What is one approach?

Accepted Answer

To starts with the idea of natural capital—the value of a country’s agricultural lands, pasture lands, forests, and subsoil resources—that we introduced in Chapter 15.

Question 47

Although natural capital is conceptually similar to measures of physical and human capital, what is an important difference?

Accepted Answer

Most of the “investment” in natural capital is negative. That is, a country’s natural capital generally declines over time as nonrenewable natural resources are used up. A decline in the stock of natural capital indicates that a country has destroyed an asset that would be valuable in the future.

Question 48

Can natural capital rise over time?

Accepted Answer

Natural capital can also rise, as occurs when a degraded renewable resource is restored—but such increases are rare.

Question 49

How can we incorporate natural capital into the framework of national income accounting?

Accepted Answer

By constructing a measure called green GDP. Green GDP is equal to conventionally measured GDP (the value of all the goods and services produced in a country in a given year) minus the value of natural capital that has been depleted or destroyed in that year.

Question 50

Why is this kind of adjustment (to construct the Green GDP) easiest to make in the case of nonrenewable resources?

Accepted Answer

Measuring the quantity of a resource that is depleted in a given year is relatively easy. The harder question is what value to assign to this depletion. We observe the price of the resource in the market, but some of this price represents the effort that went into extracting the resource. Thus, the real value that we will want to use in our calculation is the in-ground price of the resource: what the resource sells for minus what it costs to extract.

Question 51

We observe the price of the resource in the market, but some of this price represents the effort that went into extracting the resource. Thus, what is the real value that we will want to use in our calculation?

Accepted Answer

The in-ground price of the resource: what the resource sells for minus what it costs to extract.

Question 52

Why is extending this methodology (of in-ground-price) to renewable resources difficult?

Accepted Answer

Because the value of natural capital composed of renewable resources is not reduced one for one by the amount of the renewable resource used.

Question 53

How does value of natural capital change for renewable resources?

Accepted Answer

If the renewable resource is being managed properly and harvested at less than the maximum sustainable yield, then the value of natural capital will not fall at all. If the resource is being overused to the point where it cannot regenerate itself, then the decline in the value of natural capital will be much larger than the value of the resource harvested.

Question 54

For the methodology of adjusting national income to account for resource depletion, it is crucially important to use the correct prices. That is, the resource price must reflect the cost of the resource being depleted. In calculating green GDP, what is the most frequently used price?

Accepted Answer

The market price of the resource in question. If this price does not reflect the true scarcity of the resource, then the amount by which GDP is reduced to account for the depletion of the resource also will be wrong.

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Economic Growth 16 - Resources and the Environment at the Global Level Flashcards

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