exhaustible resources Flashcards
what resources are recylable?
any resource that once used can be profitably reused
what are the two ways societies react when finite stocls of nonrenewable resources become scarce?
there is self limiting feedbacks and self reinforcing feedback
what is self limiting feedback?
self limiting means that given enough time the person will recover without intervention. self limiting means to limit the growth by its own actions which ensures sustainability.
what is self reinforcing feedback?
it is a process that occurs in a feedback loop which exacerbates the effects of a small disturbance
what is an example of positive self reinforcing feedback?
Trees are capable of absorbing and storing large amount of Co2(carbon sequestration), keeping less Co2 in atmosphere and creating apositive feedback loop that promotes the growth of trees.
they also provide ecosystem services for a variety of species some of whom pollinate trees therefore as trees grow , more habitat is produced which enhances the growth of new trees.
what is an example of negative self reinforcing feedback?
huma activities cause a global temperature increase. this warmer atmosphere causes more evaporation and increased water vapour which causes more warming. this causes more evaporation so it a loop
what are the three seperate concepts used to classify the stock of depletable resources?
1) current reserves are profitably extracted at current prices - economic
2) potential reserves refer to the relationship between a resources market price and the amount of a resource that can be profitably extracted at that price - economic
3) resource endowment refers to the natural occurrence of resources in the earths crust - geological
how do you interpre the categorisation of resources graph?
A movement from top to bottom represents movement from cheaply extractable to costly extractable resources
By contrast, a movement from left to right represents increasing geological uncertainty about the size of the resource base.
what are identified resources?
Identified resources are of known quantity and quality based on geologic evidence.
what are measured resources?
Measured resources are those for which quantity and quality are estimated with a margin of error less than 20%
what are indicated resources?
Indicated resources have been estimated from sample analyses andgeologic projections.
what are inferred resources?
Inferred resources are materials in unexplored extensions of demonstrated resources (identified and measured) based on geologic projections.
what are undiscovered resources?
Undiscovered resources are surmised to exist on the basis of geological knowledge and theory.
what are hypothetical resources?
Hypothetical resources are expected to exist.
what are speculative resources?
Speculative resources are undiscovered materials that may occur in known deposits in favourable geologic settings.
what are depletable resources?
it is one for which the natural replenishment feedback loop can be safely ignored ie fossil fuels
what are recyclable resources?
is one that, although currently being used, exists in a form allowing its mass to be covered once that purpose is no longer necessary or desirable. (Paper)
what are renewable resource?
its natural replenishment augments the flow of renewable resources at a non-negligible rate.(Solar)
what is the challenge for managing renewable resources?
The challenge for managing renewable resources involves the maintenance of an efficient sustainable flow.
what is the challenge for managing non renewable resources?
The challenge for nonrenewable (depletable) resources involves the allocation of dwindling stock among generations while meeting the ultimate transition to renewable resources.
what is the time preference?
people are impatient and prefer something today as opposed to the same tommorow
when does a static efficient solution occur?
when there is no scarcity
what is the marginal user cost?
the opportunity cost of using scarce resources that would be valuable in the future?
if there was no scarcity what would the marginal user cost be?
the MUC will be equal to zero
how does the marginal user cost change over time and why?
it increases over time as opportunity cost rises over time. this is because we have taken resources that could have been used by future generations. it also raises at the rate of the discount in an efficient allocation to preserve the balance between present and future consumption
what are the assumptions of the two period model?
fixed supply of certain depletable resource
conside two time periods only
constant marginal extraction cost
total supply available is fixed
demand (marginal WTP) is constant
what is the conclusion of the two period model if supply is sufficient?
if supply is sufficient to meet demand, then a static efficient solution will provide the optimal allocations over time, regardless of the discount rate
how do we determine the optimal allocation when the supply is not sufficient in a two period model?
If supply is not sufficient we must determine the optimal allocation using the dynamic efficiency criterion: max the PVMNB
what is the formula for the present value of the two period model?
The present value for a two-period model is the sum of the present values in each of the two years.
how can the present value in each period be calculated graphically?
The present value in each period is the portion of the area under the demand curve and above the supply curve or the area under the marginal net benefit curve (which is the demand curve minus the marginal cost). The vertical intercept is the marginal net benefit at zero divided by (1 + r).
what will the dynamically efficient allocation satisfy?
the dynamically efficient allocation will satisfy the condition that: the present value
how can the two period model be illustrated graphically ?
the two period model can be illustrated graphically by flipping the graph of the period 2 such that the zero axis for the period 2 net benefits is on the right side rather then the left?
what does the size of the box on the 2 period model represent?
it represents the resource constraint
how is the resource constraint related to any point on the horizontal axis?
at any point on the horizontal axis, the sum is equal to the amount of the resource constraint
what are the assumptions for the N period economically efficient extraction path to exhaustion?
1) constant marginal extraction costs
2) increasing marginal user cost
3) falling quantities consumed
what occurs to the total marginal cost over time in the N period model ?
it increases over time as there are constant marginal extraction costs but increasing marginal user cost and marginal costs are the sum of the 2
what does the increasing marginal user cost reflect in the n period model?
it reflects the increasing scarcity and the intertemporal opportunity cost of current consumption on future consumption
when does the consumption of a depletable resource fall to zero in the n period model?
when the total marginal cost is equal to the price
what is the issue with the optimal switch to a renewable?
the problem is due to the marginal cost at each period. the firm will switch as soon as the marginal cost of the depletable is greater then the marginal cost of the renewable. however as this substitute is there to switch the exhaustion will happen a lot earlier than without. therefore there may be a situation where the optimal path never reaches the price
