Economics Special Topic 11—The Question of Resource Exhaustion
MULTIPLE CHOICE
1. Predictions of severe shortages due to impending natural resource depletion
a.
are widely accepted by resource economists even though such predictions are a relatively
new occurrence.
b.
have been wrong in the past, but most resource economists believe that the threat of
resource depletion is now far more severe than ever before.
c.
are typically made without adequate recognition and consideration of resource price
elasticities.
d.
typically assume that price elasticities are greater than they really are.
2. Resource markets are like any other market in that
a.
the increase in quantity supplied in response to a higher price will generally be greater in
the long run than in the short run.
b.
the amount demanded of a resource is inversely related to its price.
c.
higher prices encourage people to search for substitutes.
d.
all of the above are correct.
3. Generally, the elasticity of demand for an energy source in the long run will be
a.
approximately equal to its elasticity of demand in the short run.
b.
considerably more elastic than in the short run.
c.
slightly less elastic than in the short run.
d.
considerably less elastic than in the short run.
4. Higher prices for natural resources are
a.
a natural and inevitable result of resource depletion.
b.
not possible for more than a short time, as technological advances clearly guarantee falling
resource prices.
c.
not the story of the last two centuries, because resource prices have declined through most
of this period.
d.
the major cause of resource shortages in the world.
5. Forests in the United States have, in recent decades,
a.
expanded substantially in the amount of wood grown.
b.
been steadily declining in acreage and in wood produced.
c.
been cut and cleared at a faster and faster rate.
d.
shown no trend in growth or shrinkage.
6. Doomsday forecasts about running out of natural resources, with dire consequences,
a.
have occurred at least as far back in time as the 16th century.
b.
have generally been correct, and resources today are nearly all rising in price.
c.
seldom are taken seriously enough by the public.
d.
began to be heard for the first time after Earth Day of 1970.
7. The supply of oil for users in the United States
a.
was never an issue of serious public concern until the 1970s.
b.
has never been an issue of serious concern by political leaders.
c.
has often been a topic for dire warnings and forecasts of oil depletion.
d.
has been more and more in doubt since the early 1980s.
8. Economic theory indicates that the amount consumed of a natural resource depends on
a.
the price of the resource.
b.
consumer income.
c.
the price of substitute resources.
d.
all of the above.
9. Generally, the demand for energy in the long run will be
a.
approximately equal in elasticity to the demand for energy in the short run.
b.
considerably less elastic than in the short run.
c.
considerably more elastic than in the short run.
d.
perfectly inelastic because we must have energy to survive.
10. Which of the following statements is true about the demand for and/or the supply of natural resources?
a.
The supply curve for natural resources is more elastic in the long run than in the short run.
b.
The elasticity of demand for electricity, natural gas, and gasoline equals approximately 0.1
in both the short run and the long run.
c.
Natural resources are demanded by consumers and producers in steadily growing amounts,
so future shortages are inevitable.
d.
The supply of many natural resources is finite; thus the long-run elasticity of supply must
be zero.
11. What can be said about the demand and supply of natural resources?
a.
The quantity demanded of a natural resource will generally be less responsive to a change
in price in the long run than in the short run.
b.
The supply of a natural resource will generally be more responsive to a price change in the
long run than in the short run.
c.
The supply of a natural resource is fixed by nature; it cannot be responsive to a price
change in the long run.
d.
None of the above is correct.
12. Supply and demand analysis suggests that a sharp increase in the price of gasoline will cause the
a.
price of fuel-efficient compact cars to decrease.
b.
supply of gasoline to decrease.
c.
demand for large luxury cars to increase.
d.
demand for fuel-efficient cars to increase.
13. If the prices of energy products rise sharply, consumers will most likely
a.
sharply reduce their consumption of these products in both the short run and the long run.
b.
reduce their consumption of these products slightly in the short run and more sharply in
the long run.
c.
reduce their consumption of these products sharply in the short run, but in the long run
consumption will fall by only a small amount.
d.
increase their consumption of these products slightly in the short run and more sharply in
the long run.
14. The concept of “proved reserves” refers to the amount of a resource that can be produced
a.
in one year’s time.
b.
in the next ten years.
c.
before it runs out.
d.
at current prices and technology.
15. Predictions that natural resources such as oil will be essentially used up in the next few decades
a.
have been frequently made for the past century but have always proven to be false.
b.
have usually been based on the quantity of proved reserves.
c.
have ignored the role of price in governing the quantities demanded and supplied.
d.
All of the above are correct.
16. Proved reserves of tin have declined since 2000, but the price of tin has fluctuated for the past six
decades, with no obvious upward or downward trend. This indicates that
a.
the world will run out of tin in a few years because the proved reserves have fallen.
b.
short-term rises in demand and/or declines in the supply of tin have occurred over time,
but there is no reason to worry about running out of this resource in the foreseeable
future.
c.
the demand for tin has been rising and the world will run out of tin in the future unless
there is a reversal of this trend.
d.
the market price of tin will rise as miners discover more tin.
17. Proved reserves of petroleum are
a.
the verified quantity of petroleum that can be recovered at current prices and levels of
technology.
b.
the only reserves likely to be available in the future.
c.
refined products awaiting shipment to the market.
d.
the total amount of the resource in existence, regardless of the productive effort
undertaken to expand the future availability of the resource.
18. In the petroleum industry, proved reserves are
a.
evidence that uncertainty is not a problem in the industry.
b.
inevitably growing smaller over time.
c.
the same thing as the current supply of petroleum.
d.
resources recoverable at current prices and technology.
19. Suppose that new demands greatly reduce the proved reserves of titanium to unexpectedly low levels,
and it appears that the new demands will continue. If the market price is unregulated, we should expect
that the price will
a.
rise sharply, calling forth added exploration and more effective (and more costly) recovery
methods, resulting in additional new supplies of titanium.
b.
rise sharply, calling forth new ways for manufacturers to conserve titanium and to find
substitutes for it.
c.
over time, bring the quantity supplied of titanium into balance with the quantity
demanded.
d.
do all of the above.
20. The classic resource study of Barnett and Morse found that
a.
resource costs have been rising at such a rate that, within fifty years, the prices of most
natural resources will be exorbitant.
b.
the current proved reserves of most minerals are becoming perilously low.
c.
resource prices declined between 1870 and 1920, but since 1920 the relative price of
natural resources has been increasing at an annual rate of approximately 3.5 percent.
d.
technology and developing substitutes outran our use of scarce natural resources during
the last century, so that relative resource prices have declined.
21. Proved reserves of natural gas and oil
a.
will last only another five years at the current worldwide consumption rate.
b.
reveal little about whether the world is about to run out of these resources since they are
calculated at present levels of price and technology.
c.
are just another way of measuring how many years civilization will continue.
d.
indicate that the supply of petroleum will be depleted by the year 2020 unless
governments adopt price controls and energy rationing.
22. Empirical evidence suggests that the relative scarcity of most resources is
a.
declining.
b.
increasing slowly.
c.
increasing rapidly.
d.
largely unchanged over the past four decades.
23. Economic theory indicates that the economy is better off not to produce proved reserves of a mineral
“too quickly.” By this, we mean that we
a.
prefer some bad luck in exploration efforts, rather than too much good luck in finding the
resources.
b.
do not want the resource to be too abundantly available since this would reduce its price
and GDP.
c.
want to use other nations’ resources first, even if doing so is more costly.
d.
do not want to use additional resources for exploration if the present discounted value of
the benefits is smaller than the cost.
24. If proved reserves of a mineral amount to twelve years of use at the current rate of consumption,
a.
it is likely, though not certain, that we will run out of that mineral in about twelve years.
b.
we are likely to run out of the mineral in less than twelve years if our rate of use has been
increasing.
c.
if the good becomes more scarce relative to supply in the future, its price will rise and
thereby encourage both conservation and exploration.
d.
if proved reserves diminish, lower prices will extend the day of exhaustion well into the
future.
25. Since 1979, the price of crude oil in real terms
a.
has fluctuated but the overall trend has been downward.
b.
rose during 1980-2000, but the price trend has been downward since 2000.
c.
declined throughout most of the 1980s and 1990s, but in 2011 the price was once again
higher than the level of 1980.
d.
all of the above are true.
26. Data on world reserves of minerals, gathered by Blackman and Baumol, show that between 1950 and
2000, production of most minerals
a.
greatly exceeded the reserves available in 1950.
b.
declined as depletion occurred.
c.
greatly reduced the reserves available in 2000.
d.
was limited to a fraction of the reserves available in 1950.
27. Fracking, a technique for breaking up (or fracturing) rock deep under the earth to release natural gas,
has
a.
increased the price of natural gas.
b.
decreased the supply of natural gas.
c.
contaminated natural gas so it is no longer a “clean” fuel.
d.
decreased the price of natural gas.
28. In the natural gas industry, recent technological improvements and the use of fracking have
a.
increased the demand for natural gas, causing its price to rise.
b.
increased the supply of natural gas, causing its price to decline.
c.
reduced the demand for natural gas even though the proved reserves of the resource have
fallen.
d.
resulted in sharply higher natural gas prices because of the dangers that accompany
fracking.
29. Natural gas prices in real terms have
a.
increased sharply since 2008.
b.
closely followed the pattern of oil prices since 2008.
c.
risen dramatically during the past ten years.
d.
fallen sharply since 2008.
30. Renewable resources are those that
a.
can be renewed, but only with the use of energy resources.
b.
are constantly being renewed by nature.
c.
will inevitably run out over time, like all other resources.
d.
are not really scarce, because they are constantly renewed naturally.
31. Non-renewable resources are those that
a.
are not renewed by nature, but their supply can be easily expanded by humans.
b.
are naturally renewed by nature; timber provides an example.
c.
are not renewed by nature at a significant rate.
d.
cannot be recycled, by their very nature.
32. Forests in the United States, starting from the time the colonists arrived,
a.
have always expanded.
b.
have only shrunk in size.
c.
have changed little.
d.
shrank as they were logged and cleared for farms, then rebounded, especially in the
twentieth century.
33. The influence of agricultural technologies on farm land in the United States has been
a.
very little up until now.
b.
substantial, as greater productivity per acre reduced the need for farmland.
c.
substantial; the productivity of much farm land has been destroyed by new technologies
and may never be useful again.
d.
to make farmland less productive over time as the minerals In the soil are used up.
34. Researcher Indur Goklany has estimated that if traditional technologies, like those used in 1961, were
still in use, other things equal, wildlife habitat
a.
would be more abundant and far healthier today.
b.
would have increased, benefiting wildlife substantially.
c.
would have declined substantially, as the need for farmland would not have declined as it
did.
d.
would have been unaffected.
35. When a highly valued resource cannot be easily traded, as is often true with water flowing in a river,
then
a.
it will not be hoarded by the rich, but will be available to all on an equal basis.
b.
we can expect shortages from time to time, and conflicts over access to its use.
c.
its price will be low as a result.
d.
markets in the resource will clear more easily, without greed and profit to get in the way.
36. Water shortages are usually the result of
a.
profit-seeking owners of the resource holding water off the market and refusing to trade.
b.
bad forecasts by water planners.
c.
monopoly fixing of water prices.
d.
a lack of tradeable property rights in water.
37. When water cannot be traded among current and potential users, then
a.
each user will take more care to conserve, because added water cannot be obtained.
b.
users have a strong incentive to conserve because they are now protected from price
increases imposed by greedy entrepreneurs.
c.
efficiency improves, as dry years can be better anticipated and planned for, and every user
knows the quantity that will be available.
d.
water will not flow to its highest valued uses, and some users will use water for relatively
low-valued uses, because they cannot gain by selling it to others.
38. In the Central Utah Project, the water delivered from dams to users
a.
is very well utilized, because planners allocated water to its highest valued uses and users.
b.
cannot generally be traded, so is often wastefully used in low-valued uses.
c.
is often sold to water-short cities by farmers who can then enjoy a profit from the sale.
d.
is very expensive to the users who get it.
39. Water, when it is not tradeable among current and potential users, is often kept that way
a.
by governments demanding tight control over who gets the water.
b.
by nature, as water cannot be easily moved from place to place in large quantities.
c.
to protect fish and other wildlife, rather than for any other reason.
d.
by monopoly owners in the private sector.
40. Researcher Terry Anderson claims that with respect to the supply of water, trading it would be
a.
wrong and counter-productive.
b.
essentially impossible due to lack of technologies to move the water.
c.
highly productive and bring cooperation among the traders.
d.
a problem, since monopolists would come to own too much.
41. Water supply problems are widespread, indicating that
a.
water markets can seldom work, because water Is a necessity.
b.
property rights are frequently incomplete and not fully tradable.
c.
water is too important to ration by price.
d.
water markets are seldom controlled by government.
42. When market trades in water occur, we can assume that
a.
the party releasing water is the loser.
b.
the party buying water is paying too much.
c.
the trade in something as important as water is immoral.
d.
the signals and incentives flowing from the trades help many in that water market, not just
the buyer and seller directly.
43. In the United States, water purchases from the government
a.
always cover the costs of water delivery.
b.
are often subsidized for the user of water.
c.
are not subsidized, because that would be inefficient.
d.
almost never occur.
44. According to water resource economists
a.
water is seldom in short supply anywhere in the world.
b.
we are not running out of water, but specific places do run short of water, given the status
of their water supply arrangements and ease (or lack of) transferability of water among
users.
c.
the world is running out of water, just as it is running out of accessible oil.
d.
there is no workable way to make water markets function properly, because in the end, we
can’t make more water the way we can make more bread or automobiles.
45. Doomsday projections have generally
a.
been correct.
b.
been incorrect, but with better technology and the ability to predict the future, these
forecasts have become much more accurate in the last few decades.
c.
been inconsistent. Some projections came true, others failed.
d.
been wrong.
46. What happens to a resource as it becomes scarcer?
a.
The price rises and this increases the future supply relative to demand.
b.
The price rises and this increases the future demand relative to supply.
c.
The price falls and this increases the future supply relative to demand.
d.
The price falls and this increases the future demand relative to supply.
47. While the price of a resource may increase sharply during some periods, the structure of ____
accompanying the price increase makes depletion highly unlikely and provides the seeds for future
reversal.
a.
government programs
b.
foreign competition
c.
incentives
d.
taxation
48. Proved reserves are likely to underestimate the total quantity of the resource in the ground because
a.
of flaws in information flows between countries.
b.
government agencies have an incentive to keep reserves secret.
c.
of future improvements in technology and higher future prices.
d.
scientists have not been able to use the latest techniques to estimate reserves in less
developed countries.
49. The overall trend in resource prices has been
a.
upward.
b.
downward.
c.
constant.
d.
increasing exponentially.
50. How are the economic forces that apply to renewable resources different than those that apply to
non-renewable resources?
a.
Non-renewable resources must be protected by government policies to prevent depletion.
b.
Non-renewable resources do not have any substitutes so the economic forces are different
than those for renewable resources..
c.
Both renewable and non-renewable resources may become scarcer over time so the
economic forces at work are similar.
d.
Renewable resources are not subject to the laws of economics since the scarcity condition
no longer holds.
51. When natural resources are not traded, or where markets are not allowed to function as well as they
can under a system of well-defined property rights, the problems of ____ and ____ are common.
a.
higher taxes; increased regulation
b.
waste; scarcity
c.
inflation; unemployment
d.
slow growth; fluctuating currency values
52. Why do water supply problems exist in many parts of the world?
a.
Efforts to build large-scale reservoirs in arid countries have stalled due to the enormous
expense involved in completing these projects.
b.
Water markets are missing or incomplete.
c.
Global warming has increased the evaporation rate of water by over 10%.
d.
The water supply is unfit for public consumption in many areas due to pollution.
53. “If China and India continue their economic expansion, the world cannot provide enough raw materials
without terrible shortages worldwide.” Evaluate this statement.
a.
True, increased demand from developing countries will swamp the existing supply of
resources.
b.
True, increased demand from China and India will lead to large shortages in the North
America and Europe.
c.
False, the shortage will be limited to China and India.
d.
False, increasing scarcity will result in higher prices and the deployment of new
technologies that increase the efficiency of production, and together these markets forces
will help to balance demand and supply worldwide.
54. When the price of gasoline increases substantially, many consumers will
a.
turn to fuel saving alternatives like hybrid vehicles.
b.
drive less.
c.
take public transportation.
d.
all of the above are true.