University:
California State University, Northridge
Course:
ECON 101 | Economics for Everyday Life
Academic year:

2023
Views:

76

Pages:

2
Author:

Jithin J. I.

standards is a fundamental concern in economics. WHY DO WE STUDY RESOURCE ECONOMICS? Introduction - - - We study environmental and resource economics to gain insights into important issues related to resource management, sustainability, biodiversity loss, and global climate change. Historical examples like the conservation movement, energy crises, and environmental crises highlight our concerns about resource scarcity and environmental degradation. The common thread in these examples is the fear of running out of resources, be it conventional extractive resources or the capacity of environmental media to absorb the residuals of economic activity. 1.2 The Classical Robert Malthus Economists: Malthus's Theory - - - - Malthus argued that population grows geometrically (exponentially) while land (a critical resource) grows only arithmetically (slowly, if at all). This leads to the "law of diminishing returns," where the marginal product of labor applied to fixed land diminishes over time. Malthus proposed two types of checks to control population growth: preventive (moral restraint, vice) and positive (famine, pestilence, war). The "Dismal Theorem" suggests that if the only check on population growth is misery, the population will keep growing until it reaches misery. Economics and Scarcity - - - Economics, in general, is concerned with the allocation of scarce resources among competing ends. Classical economists like Robert Malthus and David Ricardo emphasized the role of land and natural resources in economics. The natural resource base's adequacy to sustain living Malthusian Scenario - A simple diagram illustrates the Malthusian scenario, with diminishing returns pushing the population to the subsistence level. 1.3 The Classical Economists: David Ricardo The Role of Capital - Ricardo's Theory - - - - Ricardo's theory, outlined in "Principles of Political Economy" (1817), differs from Malthus's in some key aspects. He did not assume a fixed or ultimate resource constraint; instead, he introduced the concept of heterogeneous land quality. Diminishing returns occur as poorer land is brought into production to meet rising demand for resources. Ricardo expanded the analysis to include minerals and resources under the land, introducing the concept of "Ricardian rent." Ricardian Rent - - - Ricardian rent is the difference between the cost of production from good land and the market price. Price in the market is determined by the marginal cost of production from the poorest quality land or resource. Owners of all infra-marginal units receive rents. - - Malthus and Ricardo assumed that labor and capital were used in fixed proportions. They didn't account for the possibility of capital accumulation or its role in increasing productivity. This assumption was reasonable in an almost exclusively agricultural economy before the industrial revolution. In summary, the study of resource economics is essential because it addresses critical issues of resource scarcity and environmental sustainability. It draws from classical economic theories, particularly those of Malthus and Ricardo, to understand the dynamics of resource allocation and the consequences of resource scarcity.