Final Exam Study Guide

Final Exam Study Guide - Harris Chapter 12 There are...

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Harris Chapter 12 There are nonrenewable resources including metals, minerals, coal, oil, natural gas that are being used up, often at increasing rates Economic supply is different from physical supply o Physical supply refers to supply in earth’s crust which is finite but not known o Economic recoverable reserves provide how much is left available for use Resources classified by geological and economic measures o Geological Measures Identified resources – already known quantities Demonstrated o Measured – within a 20% margin of error o Indicated – based on geological principles Inferred Undiscovered resources Hypothetical Speculative o Economic Measures Economic reserves – resources of high enough quality to be profitably produced Subeconomic Reserves – costs of extraction are too high to make production worthwhile An exponential reserve index assumes that consumption will grow exponentially over time, leading to more rapid resource exhaustion Reserves have grown with new discoveries and new extractive technologies so no resource has come to exhaustion A firm in a price taker market cannot control market price of resource but it can control how much to extract o Price must at least equal marginal cost to make production worthwhile
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o Resource-extracting firms typically operate at an output level at which Price > MC (Figure 12-2) Net price must rise according to Hotelling’s rule If production is very profitable today, firms will produce more, which will lower today’s price, but reduced reserves available for future production will raise future expected price Extraction costs that are stable should increase the market price for a resource, ideally, but hasn’t happened o Hotelling’s rule may only become evident when specific resources are closer to exhaustion Higher-quality resources will be exploited first o Low-grade extraction has significantly higher costs than extracting high-grade o Fixable by waiting until market price rises to make up for costs or technology makes extraction less costly Limited resource stocks will be exploited to exhaustion Every resource has a maximum price called the choke point (Figure 12-3) Look at Figure 12-4 o Stage I – price falls as new discoveries and improved technology make resource easier to obtain o Stage II – prices are stable as increasing consumption balances further discovery and technological improvement o Stage III – demand starts to press against resource limitations and prices rise o Stage IV – rising price limits consumption which falls to zero as price reaches choke point Bulk of available reserves are of considerably lower grade than those now exploited commercially o The lower the ore grade, the greater the volume of wastes generated in producing minerals of marketable qualities o Figure 12-7 o Higher private and environmental costs of resource recovery
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o Quantity of mining wastes per ton increases and require more energy per unit to
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Final Exam Study Guide - Harris Chapter 12 There are...

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