1 1. what is natural resource economics & why is it important?
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1. WHAT IS NATURAL RESOURCE ECONOMICS & WHY IS IT IMPORTANT?
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Key Terms
u Natural Resources– Specific attributes of the environment that are
valued or have proven useful to humans [or have the potential to do so]* --G. Johnston
– Aspects of nature that can be used by humans to satisfy human wants--Hite & Mulkey
– key to human use: technology, time, accessibility, appli-cation, perception; conflicts often related to culture
u Economics– the study of the production, processing,
distribution, consumption of goods/services in an exchange system
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Key Terms (cont)
u Natural Resource Economics– application of economics to manage naturally
occurring resources for human needs/wants with efficiency as the primary goal
– efficiency may be defined in market or nonmarket terms, focused on the short or long run, relative to current or future generations, local or global in scope
– decision choices include maintaining the status quo, altering the status quo, or doing nothing with focus on relevant institutions
– evaluation always includes the costs & benefits of a decision & to whom those costs & benefits accrue
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Key Terms (cont)
u Environmental Economics vs. Natural Resources Economics (Hackett)– Environmental Economics: economic basis for
pollution problems & policy alternatives– Natural Resources Economics: problems of
managing common-pool* natural resources, determining optimal rates of extraction, & understanding resource markets
– *common-pool natural resources: difficult to exclude access, but once extracted is no longer available to others (groundwater, rivers, fisheries, public forests)
u Scarcity, Opportunity cost, economic rationality
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Why Study Natural Resource Economics?
u Natural Sciences lack commonly accepted decision process
u Economics may “assume” the problem awayu Irreversibilityu Market failureu Joint importance of economic and ecological systemsu Physical-Natural-Economic System Links
– Improves efficient functioning of system– Improves understanding about the world we live in
u Summary: Improved management of natural resources, whether for private, public or natural gain
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Classification of Natural Resources
NATURAL RESOURCES
FLOW RESOURCES
FUND RESOURCES
NONSTORABLE RESOURCES
(ENVIRONMENTALRESOURCES)
STORABLE RESOURCES
RENEWABLE RESOURCES
NONRENEWABLE RESOURCES
NONRECYCLABLE RESOURCES
RECYCLABLE RESOURCES
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Classification of Resources (continued)
1. Flow Resources (nondepletable)a. Nonstorable (sometimes called “environmental resources”)»Often indivisible»Inexhaustible (in human span of time)
»Time & management relevant only to consumption, not supply
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Nonstorable Flow Resources
Sunshine
“Weather”
Ocean Waves
Ecosystems
ScenicViews
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Classification of Resources (cont)
1. Flow Resources (cont)b. Storable (by nature, as in living
matter; by humans with technology)» May be divisible» Time & management relevant to
both to consumption & supply » The services are what are
significant for humans
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Storable Flow Resources
Solar
Wind
Wave Energy
Geothermal Energy
Hydrogen Energy WaterHydroPower
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Classification (cont.)
2. Fund Resources (stock or depletable resources)a. Exhaustible & Renewable
»Regenerative within human use time frame
»Assumes use within minimum & maximum thresholds
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Exhaustible & Renewable Fund Resources
Timber & Crops
Animals(human & nonhuman
Fish
GrazingLands
Soil & Water Quality
Forests & someUnique ecosystems
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Classification (cont.)
2. Fund Resources (cont)b. Exhaustible & Nonrenewable
»Relatively fixed stocks/fund within human use time frame
(1) Nonrecyclable--Examples: fossil-fuel energy resources (oil, natural gas, coal, peat, many “renewable” resources when thresholds violated)
(2) Recyclable--Examples: some minerals (iron, aluminum, gold, silver)
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Framing Natural Resource Issues
u Quantity & Quality of: Land, Water, Air, Energy
u Public vs. Private Management Questionu Trend of Magnitude of Problem:
– Persistent, Chronic, Cyclical, Declining, Growing?u Irreversibilityu Geographic scopeu Whose problem & who decides (ethics)?u Property rightsu Time (short vs. long run; current vs. future
generations)
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Optimism vs. Concern for Environment & Natural Resources
u Concerns– Global warming & climate impacts– Over-population & biodiversity– Soil/water quality/Mineral/energy
cost/availability– Pollution/resource shortage impacts on social
& political institutions