Transcript Peak Oil Economics - University of Dayton

Peak Oil Economics I
• The “magic” of exponential growth
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“Rule of 72”
Compound interest
Discounting
Constant growth rate (of anything)
• Implications for peak oil?
• Implications for climate change?
• Connections between economic growth, fossil
fuel use, and climate change: economic
development v. economic growth
Peak Oil Economics II
Basic foundations of capitalism
Supply, Demand, and Eq.Price
Capitalism: private property and
(competitive) free markets
• Property Regimes
– No property (Open Access)
– State property
– Common property (historically common)
• Group of people control a resource
• Hardin’s “Tragedy of the Commons”
– Private property
• Efficient private property
– Transferability, Exclusivity, Divisibility
– Absence of “spillovers” (externalities)
• (Competitive) Free Markets
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Many buyers and sellers
Low or zero barriers to entry and exit of buyers and sellers
Standardized product or resource
Near-perfect information
Demand and Supply
• Demand
– Law of Demand: Price and quantity purchased are
inversely related, ceteris paribus
– Determinants (“shifters”) of Demand
• Income
• Prices of related goods: substitutes and complements
• Tastes and preferences
– Role of marketing
– Fads
– “There’s no accounting for tastes”
– Exceptions?
– Implications for peak oil?
Demand and Supply, cont’d
• Price Elasticity of Demand: How responsive is quantity purchased
to changes in price?
• % change in quantity divided by % change in price
• “perfectly inelastic”: vertical demand curve; no change in quantity
purchased regardless of how high price rises (elasticity coefficient =
0)
• Elasticity coefficient <1: inelastic
• Elasticity coefficient >1: elastic
• Determinants of elasticity
– How much a “necessity”? (availability of good substitute, or lack thereof)
– Relationship to strong complementary good
– Impact on household budget
• Demand for oil? Demand for gasoline?
• Elasticity and Saudi concern about development of substitutes –
implications for supply
Demand and Supply, cont’d
• Supply
– “Law of Supply”: As prices rise, producers will offer
more for sale, ceteris paribus (quantity offered for sale
is directly related to price)
– Determinants of Supply (“shifters”)
• Resource availability
• Technology
– Discovery (“Mayflower Problem”)
– Development
– Exceptions?
– Implications for peak oil?
Peak Oil Economics III
Economics of Natural Resources:
Competing schools of thought
- Classical Economics (18th and 19th Centuries)
Smith, Malthus, Ricardo
- Neoclassical Economics (late 19th C to present)
Hotelling, Barnett and Morse, Solow
- Institutional Economics (v. late 19th C to present)
Veblen, Zimmermann, Ayres
- Ecological Economics (past few decades)
Georgescu-Rogen, Daly, Norgaard, Costanza