Abdul Wali Khan University Mardan Pakistan

ABDUL WALI KHAN UNIVERSITY
MARDAN
Abdul Wali Khan University Mardan Pakistan. http://www.awkum.edu.pk/

NATURAL RESOURCES
ECONOMICS
lecture first
❖What is natural resources
❖Resources
❖Classification
❖Management
Aasia Asghar
Abdul Wali Khan University Mardan Pakistan. www.awkum.edu.pk

NATURAL RESOURCES
What is natural resources

Material or substance occurring in nature which can be exploited for economic gain.
Natural resource economics

Focuses on the supply demand and allocation of earth natural
resources.
-To gain better understanding of the role of NR in the economy .
-Learning about the development of the more sustainable methods to
manage recourses for present and future generation..

NATURAL RESOURCES AND ITS USES
Conservation prevention of wasteful use of natural

resources.
Why the resources are used as they are and how they
should be used at a rate that is socially beneficial to all.

Resource
The component which we obtain naturally or

artificially for utilization or use e.g. oil , coal ,air ,
water.
Classification
 Natural resources.
 Manmade.

Natural resources
On the basis of origin:

a) Biotic: made by living things(plants, animals, agriculture crops).
b) A-biotic: made by nonliving things (air,water,sun).
On the basis of development:
a) Potential: already existed and helpful for future e.g. fossil fuel.
b) Actual: which is available for future e.g. woods, forests, mines.

Natural resources
On the basis of availability:

Exhaustible resources:
Nonrenewable resources: that cannot be regenerated.
Renewable resources: which can be regenerated.
Inexhaustible resources:
That completely depleted.

Natural resources
On the basis of distribution:

National: oil, mines, gas.
Multinational/International: migrated birds, rivers.

Natural resources
Natural resources existed today if threatened by human

activities and due to population explosions, extinctions,
endangered.
By conservation of these resources:
 Economic stability.
 Beautification of environment.
 Provide lively hood.

How to conserve?
Reduce
Reuse
Recycle
Natural Resources use and adequacy:
At which rate they should be used so that they should
be socially beneficial to society?
(Refer to book page 3&4)

Natural Resource adequacy:
Economist are using huge amount of natural resource as input

e.g. petroleum, gas, coal.
Will the future supply of these resources be
sufficient to support the economic needs?
Of all coming generation or the resource shortage will become a threat
lead to collapse of economies hence standard of living?
In 1970 energy crises arises in US economy due to OPEC countries +
Muslim countries (cartel).
(for example refer to book page 3&4)

Natural Resource adequacy:
The discussion about increase in energy crises lead to two

views:
 Optimistic view
 Pessimistic view

Optimistic view
Natural resources scarcity might occur and we are

concerned too but the humans have the capabilities to
cope with this situation.
By conservation of natural resources.
By substitution of natural resources.
By bringing down population growth rate (food
shortage in Asia covered by green revolution).

Pessimistic view
Pessimist supported their view from Thomas Malthus

theory of population growth, population growth
multiplies geometrically (2,10,50,250) and resources
supply increase arithmetically (2,5,8,11,14) so when the
food supply goes up the population will grow to eliminate
that growth.

How would we know that certain Natural Resources scarcity
is going to threatened the economic welfare?
Price trend:
Natural jresources are traded in an organized market having
demand and supply. Price is the main thing upon which its
future supply is dependent thus the main focus of Natural
resource Economists is to examine the historical paths of
natural resource prices. Increase in price would signal
scarcity, decrease in price would signal absence of scarcity.
No long run tendency for natural resource price, generally
declining trend i.e. petroleum price (48$/ barrel), (
130$/barrel).

Reasons:
 Massive technological advancements:

 Decrease in transportation cost.
 Decrease in refining cost.
what is the socially optimal rate of resource use:
Long run tendency in price trend was an indirect approach. Another
approach is to focus on a rate at which particular resource is used to see
whether those rate are socially optimal or not ( from society point of
view) this is the major part of this study. Optimal use rate depends
upon: optimal means best and depends upon many factors.

what is the socially optimal rate of resource use:
Long run tendency in price trend was an indirect approach. Another

approach is to focus on a rate at which particular resource is used to see
whether those rate are socially optimal or not ( from society point of
view) this is the major part of this study. Optimal use rate depends
upon: optimal means best and depends upon many factors.
 Value of resource in alternative uses.
 Rates of natural replenishment(refining).
 Environmental factor.
Expected demographic and technological changes/trends. Thus the resource economists will use
models for finding optimal rates (fisheries/forest).

Maximum sustainable yield
It is a maximum social level at which a natural resource can be

exploited with out long run depletion. Or the largest yield that can be
taken from a stock/specie over a period. The maximum allowable catch
that can be sustained over many years. But fishes stock is reasonable in
the year of so an allowable catch rate can fluctuate from year to year.
Abundance but not in the year for a variety of resources of society.
So in fluctuating ecosystem it is a hard task for fisheries administration
to set a long run catch rate, which is socially optimal. But society is
composed of many groups of people for one group it is optimal for
other may not.

Maximum sustainable yield

Resource mismanagement
To recognize the causes of miss management of natural

resources in the primary criterion.
Efficiency: it is producing the maximum net value to
society. Producing in this case means more than
conventional ,extractive ,it includes values that
resource produce when they are not used in traditional
ways but rather are conserved for ecological purposes
or other non extractive roles.

To recognize the causes of miss management of natural resources in the

primary criterion.
Efficiency
it is producing the maximum net value to society. Producing in this case
means more than conventional ,extractive ,it includes values that resource
produce when they are not used in traditional ways but rather are
conserved for ecological purposes or other non extractive roles.
Equity:
A natural resource is being used equitable if the benefits are flowing to
society?
This depends upon our political system miss management can arise from
two major sources (refers to book page no. 8 and no. 9).

Difficulties in Private market encounter which are in some case not functioning properly.
And Miss guided public policy and public regulation
Public policy/Regulation: are made to achieve certain objectives or to subsidize users of natural
resources. But the effects of these policies are inefficient/inadequate. Example of 1872 mining
policy ( in the book page no. 9). In US a mining law was enacted to subsidize some mining
operators to achieve certain economic objectives, but the conditions in the industry is absolutely
different now while the law remains unchanged, and because of those subsidies powerful
nonpolitical constituencies have been created, which can not be changed now. [ many examples
like this will be studied in NRE] which has led to inefficiency and inequitable results.
The private market is left to themselves leading to natural resources mismanagement., and the
private markets are working inefficiently.

Preservation and Extraction
Preservation concept actually starts with new role of natural resources. In old days
natural resources were used as raw materials to be extracted and used as inputs to fuel
the economy and production of goods and services. They still play this role but in recent
decades another role has been recognized. This value of natural resources in terms of
non-extractive services. They provide scenic value, out door recreation, bio diversity
preservation. Preservation of natural heritage for example: a debate was started about
it’s role.
 Construction of a dam vs Natural beauty with flowing water.
 Cutting of old forest vs preservation endangered species.
 Drilling for oil in a forest area.
 Now the resource Economy have to choose between both and they have to compare it.
(For further examples refer to book page 11)

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ABDUL WALI KHAN UNIVERSITY

Abdul Wali Khan University Mardan Pakistan. http://www.awkum.edu.pk/

Abdul Wali Khan University Mardan Pakistan. www.awkum.edu.pk

What is natural resources

Natural resource economics

Abdul Wali Khan University Mardan Pakistan. www.awkum.edu.pk

Conservation prevention of wasteful use of natural

Abdul Wali Khan University Mardan Pakistan. www.awkum.edu.pk

The component which we obtain naturally or

Abdul Wali Khan University Mardan Pakistan. www.awkum.edu.pk

On the basis of origin:

Abdul Wali Khan University Mardan Pakistan. www.awkum.edu.pk

On the basis of availability:

Abdul Wali Khan University Mardan Pakistan. www.awkum.edu.pk

On the basis of distribution:

Abdul Wali Khan University Mardan Pakistan. www.awkum.edu.pk

Natural resources existed today if threatened by human

Abdul Wali Khan University Mardan Pakistan. www.awkum.edu.pk

Abdul Wali Khan University Mardan Pakistan. www.awkum.edu.pk

Economist are using huge amount of natural resource as input

Abdul Wali Khan University Mardan Pakistan. www.awkum.edu.pk

The discussion about increase in energy crises lead to two

Abdul Wali Khan University Mardan Pakistan. www.awkum.edu.pk

Natural resources scarcity might occur and we are

Pessimist supported their view from Thomas Malthus

Abdul Wali Khan University Mardan Pakistan. www.awkum.edu.pk

Abdul Wali Khan University Mardan Pakistan. www.awkum.edu.pk

 Massive technological advancements:

Abdul Wali Khan University Mardan Pakistan. www.awkum.edu.pk

Long run tendency in price trend was an indirect approach. Another

Abdul Wali Khan University Mardan Pakistan. www.awkum.edu.pk

It is a maximum social level at which a natural resource can be

Abdul Wali Khan University Mardan Pakistan. www.awkum.edu.pk

Abdul Wali Khan University Mardan Pakistan. www.awkum.edu.pk

To recognize the causes of miss management of natural

Abdul Wali Khan University Mardan Pakistan. www.awkum.edu.pk

To recognize the causes of miss management of natural resources in the

Abdul Wali Khan University Mardan Pakistan. www.awkum.edu.pk

Abdul Wali Khan University Mardan Pakistan. www.awkum.edu.pk

Abdul Wali Khan University Mardan Pakistan. www.awkum.edu.pk

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