How much do we need to worry about what happens
when the world supply of a nonrenewable
resource is used up? For any resource
that has a finite supply we know that it
will eventually run out, but the price
of the resource will rise and that will
provide a signal that will make the
transition happen gradually.
You might have a nightmare
that one morning we suddenly wake up and
the supply of a valuable resource has just
disappeared, but more likely the increasing
price will lead to a variety of effects that
will make the transition happen gradually.
As the price increases, there will
be effects on both the demand
and the supply. A higher price
will encourage buyers to find
substitutes for the resource.
The increased demand for
substitutes will benefit
the producers of the substitutes
and encourage them to conduct
research to find even better
substitutes. The higher
price will encourage the users
of the resource to find ways to cut
back on its use. Although the
increasing price of a resource
is not likely to be popular with
the public, the price provides
an essential signal that makes
the transition happen gradually.
A higher price will encourage suppliers
to look for the resource in harder-to-reach
places. Not surprisingly, the resources
that are easier and cheaper to find will be
used first, but the harder-to-reach supplies
will be economical to extract when the price
is high enough.
Economist Harold Hotelling did
pioneering analysis of the economics
of resources and made predictions
about how fast the price would
increase under certain conditions.
……………..
–Douglas Downing
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