Generalized Resource ScarcityIndicators of ScarcityA good indicator of scarcity:Issues for indicators of scarcity:The BetSlide 6Slide 7Slide 8Slide 9Slide 10Slide 11Factors Mitigating ScarcitySlide 13Slide 14Slide 15Slide 16Slide 17Slide 18Slide 19Film:Generalized Resource ScarcityMonday, April 26Indicators of ScarcityPhysical indicatorsResource pricesScarcity rentMarginal discovery costMarginal extraction costA good indicator of scarcity:Provides foresight•Anticipate, not just reportProvides comparability•Indicate relative scarcity of different resources•Indicate which scarcity is more problematicOffers computability•Uses readily available or easily obtainable data for calculationsIssues for indicators of scarcity:Physical indicators•Foresight•Comparability•ComputabilityResource prices•Foresight•Comparability•ComputabilityThe BetBiologist Paul Ehrlich and economist Julian Simon$200 investment Copper, chrome, nickel, tin and tungstenIssues for indicators of scarcity:Scarcity rent•Foresight•Comparability•ComputabilityMarginal discovery cost•Foresight•Comparability•ComputabilityIssues for indicators of scarcity:Marginal extraction cost•Foresight•Comparability•ComputabilityFactors Mitigating ScarcityExploration and Discovery•Search for more of a resource until the marginal discovery cost of an additional unit equals the marginal user cost (marginal rent) of the unitDQ$MECMEC+MUCPq1At q1, MUC = P - MECFactors Mitigating ScarcityTechnological Progress•Lower cost of extraction•More productive processesDQ$MECMEC+MUCPFactors Mitigating ScarcitySubstitution•Substitute abundant resources for scarce onesXYF1, Q1Fixed-proportion isoquantQ1= one (edible) 8” pie crustX = flourY = shorteningPossibilities for Input SubstitutionXYF1, Q1Fixed-proportion isoquantsQ2= two (edible) 8” pie crustsX = flourY = shorteningF2, Q2XYF2, Q2Fixed-proportion production functions:F1, Q1If availability of resource X declines, then the availability of Q necessarily declines.Substitution is not an option for retaining same level of Q.XYS1, Q1Q1= one pint of salad dressingX = oilY = vinegarXYS1, Q1Substitutability in production:If the availability of resource X declines, the availability of Q may not be affected. Substitution of Y for X may allow for retaining same level of Q.Film:Dodging