Chapter 10 TP
Two questions:
1. What is the economically efficient rate at which a known deposit should be used up?
2. How much should be devoted to geological exploration?
Expected results over time: we competitive extraction sector we would see rates of extraction go
downward and prices increase.
Mineral Prices are declining!
2. Resource discovery function: it is the marginal cost of expanding reserves. A firm decides whether
to reduce today’s extraction or find new stocks. The efficient decision is where the marginal costs of
these two activities are equal i.e. where resource rent equals marginal cost of discovery.
Recycling: What is the efficient anoint of recycling? What is the efficient allocation of recycleable
resources? A comparison of extraction and disposal cost. The correct inclusion of social disposal costs
may result in lower input prices, total consumption would increase as a result, increasing the use of
recycled materials, lowering the use of virgin materials and extends, thus extending the life of a
depletable, recyclable resource.
Recycling from the perspective of the input user (a producer of aluminum cans)
Ways to increase recycling ratio
1. Reducing demand: has the effect of using less virgin source if recycling cost are lower than
extraction cost
2. Lowering the cost of recycling: has the effect of increasing use of recycled materials
3. Increasing the extraction costs: has the effect of reducing overall consumption, reducing use of
virgin materials and increasing use of recycled materials
Explain how changes could occur that produce increases in the quantity of materials recycled and
simultaneously decrease the recycling ratio Qr/Qv
Attractiveness of recycling increases as costs of virgin materials and disposal rise.
Benefits of recycling: an alternative to higher cost virgin materials and reduction in waste disposal
costs.
Avoided disposal cost versus net recycling costs. Benefits versus costs. Setting up recycling is to
increase benefits; ie-increase the avoided disposal costs. Mine is fixed up to a point (capacity of my
garbage bin).
My recycling choice versus my disposal choice. Go to the recycling center (transportation costs) or
throw it in the garbage. My private disposal cost is low compared with the social costs.
What happen if marginal cost of disposal is zero?
Under what conditions are my marginal costs zero? Fixed fees (pay $30 a year in taxes)
Using economic analysis, would you expect transients or residents to have a higher propensity to litter?
Would volume pricing impose disposal charges reflecting true social cost of disposal? What about
fairness? Using stickers on each additional bag: introducing marginal costs behavior.