WHY DO WE STUDY RESOURCE ECONOMICS? Introduction - We study environmental andresource economics to gaininsights into important issuesrelated to resource management,sustainability, biodiversity loss,and global climate change. - Historical examples like theconservation movement, energycrises, and environmental criseshighlight our concerns aboutresource scarcity and environmental degradation. - The common thread in theseexamples is the fear of runningout of resources, be itconventional extractive resourcesor the capacity of environmentalmedia to absorb the residuals ofeconomic activity. Economics and Scarcity - Economics, in general, isconcerned with the allocation ofscarce resources among competing ends. - Classical economists like RobertMalthus and David Ricardoemphasized the role of land andnatural resources in economics. - The natural resource base'sadequacy to sustain living standards is a fundamentalconcern in economics. 1.2 The Classical Economists:Robert Malthus Malthus's Theory - Malthus argued that populationgrows geometrically (exponentially) while land (acritical resource) grows onlyarithmetically (slowly, if at all). - This leads to the "law ofdiminishing returns," where themarginal product of labor appliedto fixed land diminishes over time. - Malthus proposed two types ofchecks to control populationgrowth: preventive (moralrestraint, vice) and positive(famine, pestilence, war). - The "Dismal Theorem" suggeststhat if the only check onpopulation growth is misery, thepopulation will keep growing untilit reaches misery. Malthusian Scenario - A simple diagram illustrates theMalthusian scenario, withdiminishing returns pushing thepopulation to the subsistencelevel.
1.3 The Classical Economists: DavidRicardo Ricardo's Theory - Ricardo's theory, outlined in"Principles of Political Economy"(1817), differs from Malthus's insome key aspects. - He did not assume a fixed orultimate resource constraint;instead, he introduced theconcept of heterogeneous landquality. - Diminishing returns occur aspoorer land is brought intoproduction to meet rising demandfor resources. - Ricardo expanded the analysis toinclude minerals and resourcesunder the land, introducing theconcept of "Ricardian rent." Ricardian Rent - Ricardian rent is the differencebetween the cost of productionfrom good land and the marketprice. - Price in the market is determinedby the marginal cost of productionfrom the poorest quality land orresource. - Owners of all infra-marginal unitsreceive rents. The Role of Capital - Malthus and Ricardo assumedthat labor and capital were usedin fixed proportions. - They didn't account for thepossibility of capital accumulationor its role in increasingproductivity. - This assumption was reasonablein an almost exclusivelyagricultural economy before theindustrial revolution. In summary, the study of resourceeconomics is essential because itaddresses critical issues of resourcescarcity and environmental sustainability. It draws from classicaleconomic theories, particularly those ofMalthus and Ricardo, to understand thedynamics of resource allocation and theconsequences of resource scarcity.