Transcript Production Possibility Frontier & GDP

Production Possibility Frontier
&
GDP
ASSUMPTIONS
Housing
Given Quantity of
Labor (education & Skills)
Capital (machines, tools, factories)
Land (natural resources)
Fully Employed
Technology Constant
 A
M
J
CD’s
GDP = Gross Domestic Product
Dollar value of all goods &
services produced in one
year
Measuring Growth Rates
GDP
 GDP percapita
Population
GDP = Population x GDP per capita
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“Growth”GDP = “Growth" Pop + “Growth”GDP per capita
5% = 3%
+ 2%
Economic Growth, Population Growth, per capita Income Growth
Traditional Econ View of Growth
5% = 3%
+ 2%
GDP Growth > Pop Growth   Std Living
Requires
 Productivity of Population (ie, labor)
Requires
 Capital
 Technical Improvements

Traditional Economics
“no limits”
Traditional View cont’d
Housing
 A
M
“Unlimited
Growth”
J
CD’s
Ecological Econ View of Growth
5% = 3%
+ 2%
GDP Growth > Pop Growth   Std Living
Requires
 Productivity of Population (ie, labor)
Requires
 Capital
 Technical
Improvements
Add as
requirement

 Energy
 Natural Resources

 Waste
“Limited” Amt
Using up
Absorptive
Capacity of
Environment
GDP Growth > Pop Growth   Std Living
Requires
 Productivity of Population (ie, labor)
Requires
 Capital
 Technical
Improvements
Add as
requirement
 Energy
 Natural Resources
 Waste

“Limited” Amt
Using up

Absorptive
Capacity of
Environment
Connection between Human
Economic Activity & Environment
Takes us to “Limits to Growth” Model
MIT’s Limits to Growth Model
Structure of Model
Flow-Chart representation of
Mathematical Model
STOCKS: dark shaded boxes
Population
Cultivated land
Pollution
Industrial Capital
Non-Renewable Resources
STOCKS w/ LIMITED SUPPLY
Cultivated Land
Non-Renewable Resources
VARIABLES
Inserted  Estimates or Historical
From other boxes or loops
Fertility %, life expectancy, Desired food/person,
efficiency of capital %, Investment rate %,
Average lifetime of capital
Based on:
1) EXPONENTIAL
GROWTH
Population
Industrial Output
2) FIXED
RESOURCES
Cultivated land
non-renewable resources
3) FEEDBACK LOOPS
Positive  reinforce
Negative  self-limiting
If POS > NEG  Exponential Growth
If POS > NEG  Exponential Growth
Negative Loop
Industrial Output
Uses up
Nonrenewable
resources
Lesser quality
Lower grades
More effort
 Cost
Offsets Output
growth
Plug in numbers for variables and Run Model
# 1 “Standard” World Model
Assumptions:
No change:
physical
Economic
Social Relationships
Exponential Growth in:
Population
Food
Industrial Output
  Resources
 Resources
“Force”
“Precipitous
Collapse”
 Industrial Output
(Massive
Unemployment)
 Food Production
 Death Rate
 Population
#2 “Piecemeal” Approaches
Recycling, Efficient Irrigation, New energy
Sources
Change Assumptions:
A. Double Resources (run model)
Still Collapses
but not caused by depletion of Resources!
Caused by Excessive Pollution
created by Faster Industrialization
permitted by  Resources
#2 “Piecemeal” Approaches
Recycling, Efficient Irrigation, New energy Sources
Change Assumptions:
B. Double Resources & Eliminate Pollution (run model)
Still Collapses
 Population vs. Available Food
Conclusion: remove one “limit”
 bump up against another
# 3 Avoid “Overshoot” & Collapse
Only if limit growth of what now  exponentially
Population
Industrial Output
Will happen
A) Conscious Policy  self-restraint
B) Collision with natural limits
Criticisms of “Limits to Growth”
Julian Simon, The Ultimate Resource
…the natural world allows, and the
developed world promotes through the
marketplace, responses to human needs
and shortages, in such a manner that one
backward step leads to 1.001 steps
forward, or thereabouts. That’s enough to
keep us headed in a life-sustaining
direction. (con’t next slide)
The main fuel to speed our progress is our
stock of knowledge, and the brake is our
lack of imagination. The ultimate resource
is people – skilled, spirited and hopeful
people who will exert their wills and
imaginations for their own benefit, and so,
inevitably, for the benefit of us all.
Julian Simon, The Ultimate Resource
Lesser, Dodds, Zerbe,
Environmental Economics & Policy
…there is little reason to fear the catastrophic
collapse of societies postulated by the
authors of The Limits to Growth. The
substitution of competitive markets for
rigidly regulated ones has provided new
incentives to explore and develop energy
and mineral resources. Reserves of many
important commodities have been
increased, through new discoveries or
greater incentives to recycle products that
were formerly treated as wastes.
Limits to growth being
criticized for not recognizing:
• Human ingenuity   technology
• Adaptability
The end