Introduction to the Economics of Natural Resources
Understanding Scarcity and Allocation
In economics, scarcity refers to the limited availability of resources relative to human wants and needs. Natural resources, such as water, minerals, and land, are vital for various economic activities. Market forces of demand and supply play a crucial role in allocating these scarce resources.
Types of Natural Resources
- Renewable resources: Can be replenished naturally, such as water and forests.
- Non-renewable resources: Finite in quantity, such as minerals and fossil fuels.
Properties of Natural Resources
- Depletion: Natural resources can be depleted over time due to extraction and consumption.
- Exhaustibility: Non-renewable resources can eventually be exhausted.
- Environmental impact: Extraction and use of natural resources can have negative environmental consequences.
Market Failure in Natural Resource Allocation
Market failures can occur in the allocation of natural resources, such as:
- Externalities: Environmental impacts of natural resource use are not fully reflected in market prices.
- Common property resources: Resources that are not privately owned can lead to overexploitation.
Government Intervention in Natural Resource Management
Governments often intervene in natural resource management to address market failures and promote sustainability. This may include:
- Regulation: Setting limits on extraction and use of resources.
- Taxes and subsidies: Encouraging or discouraging certain activities.
- Property rights: Establishing clear ownership and incentives for sustainable management.
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