307
Special Topic 11
The Question of Resource Exhaustion
OUTLINE
I. Doomsday Forecasts
A. Forecasts that the world will soon run out of various key resources have been made for
centuries.
1. These forecasts have consistently been wrong.
II. Why Have the Doomsday Forecasts Been Wrong?
A. When resources are allocated by markets, increased scarcity leads to higher prices.
1. The higher prices will strengthen the incentive for (a) users to reduce their
consumption, (b) suppliers to search for ways to expand future supply, and (c) both
III. Proved Reserves and Running Out of Resources
A. Proved reserves are the verifiable quantity of a resource available at current prices and
technology.
B. They are not the total supply of the resource that will be available in the future.
IV. Are Resources Becoming Scarcer?
A. The trend in the price of resources has been downward for at least a century, indicating
that the relative scarcity of most resources has been declining.
V. Renewable Resources
A. Renewable resources are those that are renewed in nature, like water flows, or grown,
like timber.
B. Are Forests Disappearing?
C. Technology and Land Management.
D. Those resources, too, can become scarcer and more expensive in a market depending on
VI. Natural Resources When Markets are not Allowed to Function Fully?
A. When property rights are poorly defined or when regulations make a resource non–
tradable, waste will result because the resource will often be directed toward less
valuable uses.
308 Special Topic 11/Are We Running Out of Resources?
1. Water Markets
a. Water supply problems reflect the fact that in most situations, water
markets are missing or are incomplete.
OBJECTIVES
This application analyzes whether we are running out of resources. The chapter starts with a
discussion of doomsday forecasts and whey they have been wrong. The special then analyzes
whether resources are becoming scarcer and discusses proved reserves. The special topic also some
of the difficulties that arise in resource markets when they are not allowed to fully function.
IMPORTANT POINTS AND TEACHING SUGGESTIONS
1. Be sure to discuss the doomsday forecasts that have been made for centuries that the world will
soon run out of various key resources. These forecasts have consistently been wrong. , When
resources are allocated by market increased scarcity of resources leads to higher prices. The
2. Point out proved reserves are the verifiable quantity of a resource available at current prices
and technology. They are not the total supply of the resource that will be available in the future.
Proved reserves can be expanded with improvements in technology and increases in prices.
3. The trend in the price of resources has been downward for at least a century, indicating that the
4. Use Exhibit 2 to point out that virtually there was no increase in oil price between and 1949
and the 1970s. Exhibit 2 shows that since then, however, the real price of crude oil has risen
sharply, fallen back, and then risen sharply again since 2000.
5. Renewable resources are those that are renewed in nature, like water flows, or grown, like
Special Topic 13/Are We Running Out of Resources? 309
HINTS FOR ANSWERING CRITICAL ANALYSIS QUESTIONS
1. When resources are allocated by markets, increased scarcity leads to higher prices. The higher