Microeconomics Study Set 47

Business

Quiz 26 :

The Question of Resource Exhaustion.

Quiz 26 :

The Question of Resource Exhaustion.

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If the world were about to run out of a highly valued resource, what would happen to its price How would this affect the future supply of the resource relative to demand
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No resource is exhaustible till the allocation is in accordance with the forces of market demand and supply. If a resource is getting depleted on account of its very high use, there will develop a scarcity of the concerned resources. In other words, supply of resource will fall relative to demand pushing the price of the resources upward.
Increase in the price of resource will lead to three possibilities:
1) Its usage will be reduced over time;
2) Its supply will be increased over time; and
3) Both the users and producers may develop substitutes.
As a result, the supply of the resource will decline in relation to demand over a period of time.

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"If China and India continue their economic expansion, the world cannot provide enough raw materials without terrible shortages worldwide." Evaluate this statement.
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The expansion of India and China means an increase in the demand for the resource. As a result, existing supply will fall relative to demand.
However, this should not lead to the conclusion that it will create shortages. This is because the market for the resources will send signals to the users and producers in the form of increased price of resources and creating incentives for both to make changes.
Users will reduce the demand and the producers will either increase the supply or develop substitutes in future. Hence, there will not be lasting shortages.

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In the industrial nations, have succeeding generations, each with a higher income than before, left the world resource-poor, with only low-grade mineral ores left, for example Have they been "consuming the birthright" of future generations Explain your answer.
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Each generation becoming richer than the previous generation does not mean that the use of the resources by successive generation has left only low-grade mineral resources for future generations. This is because, each successive generation, though has less of the physical natural resources under the earth, but the advancement in technologies and innovation by successive generations has increased the efficiency in the use of resources. This has rather reduced the waste and scarcity of resources.
Advancement in technology, innovations, and the expected price of resources has increased the quality of the mineral ores. This has been made possible by the forces of market supply and demand, the interaction of which provides the incentives to innovate and make technological advancements.
It is wrong to assume that each successive generation by becoming richer is "consuming the future's birthright". When the resources are determined in accordance with the market and property rights are in place without any intervention from the government, then there exists incentive to innovate. The result is economic progress that increases the prosperity from one generation to next generation.

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Why have cotton fields retreated and forests returned in many areas of the southeastern United States With fewer acres farmed, will the nation continue to be able to provide food and fiber for itself Explain.
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*"Water is a necessity of life. It should not be bought and sold, or traded in markets!" Use the economic way of thinking to evaluate this statement. *Asterisk denotes questions for which answers are given in Appendix B.
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