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The economics of Exhaustible Resources - Essay Example

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It is the main concern of the following paper to establish whether it is viable to either extract or not the remaining exhaustible resources in the future considering the relevance of Harold Hotelling work in today’s world economic situation…
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The economics of Exhaustible Resources
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The economics of Exhaustible Resources

Download file to see previous pages... This essay discusses that without a doubt, economists’ description of exhaustible resources is based on the prediction of production and price trajectories and the likelihood of resources exhaustion. This is because; exhaustible resources have limited life span considering the optimal exploitation of resources at the both individual and industrial level. As a result, focus on Harold Hotelling explanation on maintenance of exhaustible resources is based on the importance of sustainability of a production–consumption system as a way of controlling extinction of exhaustible natural resource without getting comparative advantage from it as compared to its future demand. More significantly, it is imperative for exploitation of non-renewable resource to be undertaken for the benefit of the people and a country’s economy considering the level of extinction and financial value derived. Considerably, it is essential to make decisions considering the economic models that focus on sustainable economic growth taking into account resource constraints. As a result, it is decisive to evaluate on whether or not it is viable to carry out exploration on the extent in which resource constraints can be overcome by substitution and technological change. Nonetheless, the influence of the extinction of natural non-renewable resources is focused on the current initial stock of the resource considering the amount of the resource to be extracted within different periods with the main aim being on the maximization of profits. (Hotelling 139). However, it is difficult for a country to avoid exploiting its exhaustible resources especially when there is a high demand for the commodity. More so, it is essential to consider that non-renewable resources provide a comparative advantage because countries could be the sole producers of valuable non-renewable resources. As a result, such country’s take advantage of their monopolistic position in the resource market, as it lacks competition in the production of the exhaustible resources thus, positioning itself strategically in the world market (Martinet 17). In addition, a country makes a decision on price that the exhaustible resource would be sold as it gains competitive advantage, when negotiating for the prices being the sole producers of such extinct natural resources like oil. Thus, the duty of a government is to create ways in which the non-renewable resources can be sold in the world market resulting in a country getting a chance to exploit the non-renewable resources it has by using the best-suited strategies of price maximization. Although, exhaustible resources bring international trading to a country it also creates issues in terms of international development in the world. More so, exhaustible resources are predicted by production and price trajectories thus it becomes difficult for countries to make viable decisions considering the fact that the resources become scarce leading to increase in prices of non-renewable resources. However, such decisions of taking advantage of the prevailing high prices does not take into consideration the international development issues including effects resulting from the extinction of most of the natural resources that are in the risk of extinction because they are non-renewable (Solow & Wan 360). More significantly, the dominance in the monopolistic market of different natural resources have seen organizations that are establish by countries join to create a common stand in the provision of higher prices of the exhaustible resource they produce. For example, oil producing and exporting countries (OPEC) that deals with the oil ...Download file to see next pagesRead More
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