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

2023
Views:

385

Pages:

2
Author:

Jithin J. I.

ECONOMIC MEASURES OF SCARCITY 5.1.2.1 Cost and Productivity  The consideration of trends in costs of resource extraction, or more generally, production, can be linked to the Ricardian model of resource exploitation.  In the Ricardian model, the best land and richest resource deposits are used first. As population and the economy expand, poorer quality and higher-cost resources are drawn into production. This implies that the cost of production should increase over time due to resource scarcity.  Surprisingly, in the influential work "Scarcity and Growth" by Harold Barnett and Chandler Morse (1963), this Ricardian trend of increasing costs for specific resources or resource categories was not found.  Barnett and Morse suggested a wider definition of costs, considering social costs, including environmental disruption, which might have been increasing over time. 5.1.2.2 What "Scarcity and Growth" Found  "Scarcity and Growth" examined unit costs for all extractive resource outputs, including agriculture, minerals, and forest products, over the period 1870–1957.  Unit costs were estimated based on labor and capital inputs per unit of output. Labor and capital inputs could be measured for agriculture and minerals, while labor inputs were used for forests and fisheries.  The key finding was unexpected: Costs of production, especially for agriculture and minerals, declined dramatically over time, contrary to the traditional Ricardian hypothesis of increasing costs due to resource depletion.  The decline in costs for forestry, although not as steep, was also observed, but this trend flattened in the later period. 5.1.2.3 Factors Explaining the Decline in Costs  Technological advancements played a significant role in reducing production costs in agriculture and minerals. Innovations included the use of machinery, improved breeds, fertilizers, and other advancements in production techniques.  Changes in agriculture, driven by the Industrial Revolution, substantially increased productivity. The expansion of high-quality agricultural land, particularly on the Great Plains, contributed to lower costs.  A closer look at American agricultural history reveals that the total farmland acreage more than doubled from 1870 to 1920 due to significant settlement on the Great Plains. This expansion significantly influenced the decline in costs.  For minerals, advances in geological knowledge and extraction technologies, such as selective flotation techniques, led to lower unit production costs. 5.1.2.4 Update on Cost Trends  Johnson et al. (1980) extended the analysis of resource production costs up to 1970.  The study found that the decline in unit extraction costs continued beyond 1957 for all resource categories: extractive resources, agriculture, and minerals.  In fact, the post-1957 period showed an increasing rate of decline in unit extraction costs, defying the classic Ricardian trend.  Forests and fisheries displayed different patterns. Forestry costs reversed the classic trend, while fisheries costs initially declined but then rose, likely due to over-exploitation of ocean fisheries.