Section 11: Non-renewable resources

Question 1

Define a non-renewable (exhaustible) resource

Answer 1

A resource that once used, is no longer available for future consumption

Question 2

What is the difference between mineral reserves and resources

Answer 2

Reserves are what have been discovered and measured to be economically feasible to extract at current prices and technology. Resouces are all of the stock, including what has not been discovered and what is not profitable to extract.

Question 3

Define Ultimately Recoverable Resource (URR)

Answer 3

Estimate of the total amount that has been and ever will be recovered

URR = total production + current reserve + discovered resources + undiscovered resource

Question 4

Which fossil fuel is most abundant worldwide?

Answer 4

Coal

Question 5

Explain the “peak oil” perspective on oil consumption and fossil fuel use

Answer 5

Once we pass the “peak” of oil consumption, there will be total economic and social catastrophy. Perspective is technology static

Question 6

Explain the economic perspective on fossil fuel use

Answer 6

Society tends to innovate and adapt. Optimist that technology will improve by considering markets, innovation, and international dynamics.

Question 7

The marginal net benefit is ___ + ___ for a certain quantity demand

Answer 7

Consumer surplus + producer surplus

Question 8

Define User Cost

Answer 8

The opportunity cost to consume the resource

Question 9

Which period do we apply a discount rate to the MNB curve? Present or future?

Answer 9

Future

Question 10

Consuming one unit today carries a ____ ____ on future generations

Answer 10

User cost (or opportunity cost)

Question 11

According to neoclassical economics, how should we consume a non-renewable resource?

Answer 11

Consume less and less each year

Question 12

What is Hotelling’s rule?

Answer 12

Non-renewable resources should be extracted so that its net price rise overtime at a discount rate

Question 13

What does a high discount rate imply? What does a low discount rate imply?

Answer 13

Use the resources quickly

Conserve the resources

Question 14

What is “rent” in economics? What are the 2 types of rent?

Answer 14

Rent is a special type of producer surplus or profit that applies to natural resources

Types: Scarcity rent and Differential rent

Question 15

Explain what scarcity rent is and provide examples of resources that would receive scarcity rent

Answer 15

Extra profits made by firms due to a resource having limited supply

Examples:

• Oil
• Mining minerals
• Agricultural land
• Taxi licenses

Question 16

If a resource has a difference in quality, what happens to the long-run supply curve?

Answer 16

It goes from flat to sloping upwards

Question 17

What is Differential (Ricardian) rent?

Answer 17

Profit that arises due to differences in quality of the resource

Question 18

What is Hartwick’s Rule on investing resource rents?

Answer 18

A nation must invest all of the rent earned from exhaustible resources into other capital

Question 19

Does Hartwick’s Rule follow weak or strong sustainability?

Answer 19

Weak Sustainability