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Unformatted text preview: Otherwise nothing would be conserved, but only because the third period people didn’t value the oil enough to make it worth conserving. Returning to the two-period world, suppose that the government decides that the free market is not conserving enough oil, and it forces people to consume only Q0’ in period 0. This would cause a loss equal to the right shaded area. The conserved oil becomes available for period 1, and period 1 people can increase their consumption from Q1 to Q1’, but the resulting gain (left shaded area) is smaller than the loss. Conclusion: The market automatically conserves resources at an optimal rate, so that we only run out of resources if it’s in our economic interest to run out. Forced conservation of any good (through recycling, mileage requirements for cars, etc.) only wastes resources....
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This note was uploaded on 09/25/2008 for the course ECON 160 taught by Professor Baim during the Summer '98 term at UCLA.
- Summer '98