Home > China, Microeconomics > Why “Scarce” Does Not Mean “One Day We Will Run Out of Oil”

Why “Scarce” Does Not Mean “One Day We Will Run Out of Oil”

I recall reading a book about the future when I was about 10 years old. One of the predictions was that the world would run out of oil within 10 or so years.

Thirty-odd years later, of course, there are more proven oil reserves than when that prediction was made, but still I have a hard time convincing students that the world will never run out of oil.

The problem is a fundamental lack of understanding the idea of scarcity and how it effects prices. We’ll never recover the last barrel of oil–wherever in the world it might be–because it will likely be the most expensive barrel of oil ever brought to the surface of the earth, and there’s no way anyone would pay the costs to extract and use it.

The same goes for rare-earth minerals. This week scientists at the University of Tokyo announced the discovery of vast expanses of deep-sea mud, which contain the same rare-earth minerals for which China presently enjoys a near-monopoly on production.

But as this article explains, the cost of bringing these minerals to the surface is far above the current market price. For the foreseeable future, these scarce minerals will stay put…because they are not scarce enough, yet.

For that matter, they may stay there forever.

This would make for an excellent essay question on the relationship between supply and demand, expectations of future prices, and the availability of substitutes, no?

Advertisements
Categories: China, Microeconomics
  1. Brian
    January 2, 2012 at 1:54 pm

    I agree with the fact that its hard for such rare resources to run out as a result of the cost of production exceeding the market price. But i think that there will come a time when they become really scarce and as a result the price will shoot up and this will be an incentive for those who can produce these goods to produce them because their productions costs will be less than the market price.

  1. No trackbacks yet.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: