Marginal Resources Some land might be very good for producing certain crops - ri
ID: 1210890 • Letter: M
Question
Marginal Resources
Some land might be very good for producing certain crops - rich in nutrients and easy to access and work. This land is likely to be used first for any cultivation because the relationship between the cost of producing the crop and the return gained from selling it will be highest. However, land that is not so good will be taken into cultivation if certain conditions allow.
These conditions could be a rise in the price of the crop concerned or a means of either reducing the cost of producing the crop (perhaps through a greater understanding of how to maximize crop yield). Alternatively, it could be through some technological development that raises productivity (output per acre) or yield (for example, through breeding, selection and genetic modification).
The capital cost of exploiting this resource is very high and at the margin is only worth investment if the return from one extra barrel of oil is greater than the cost of extracting it.
The cost of exploiting the oil sands is relatively high. The separation of the oil from the sand is capital intensive, and then there have to be refineries that will process the oil into its constituent parts. Added to this is the cost of reclaiming the land and replanting it.
Oil prices are determined by an international market. The demand for oil has been rising in recent years. There is, at the moment, plenty of oil available but the ability of the world to extract oil and to process it is where the problem lies. At present, we simply do not have the processing capacity to refine oil to keep up with the rising demand, which is why the price has risen so dramatically. (There are other reasons, of course - concern over Middle East politics, the turmoil throughout the Middle East…etc).
As the price rises, marginal oil reserves - those that exist but are relatively expensive to exploit - become viable. In simple terms, if a barrel of oil from the oil sands area costs $30 to produce, then if the price rises above $30 it makes it economically worthwhile to extract for production, whereas at $25, the decision would be less obvious.
It is certainly the case that non-renewable resources remain exactly that - non-renewable - but as technology develops and as resources become more scarce in relation to demand, the market will lead companies to look to exploit resources that may have been considered impossible to extract or which were simply too costly to produce. It is all down to decisions at the margin.
Questions
1. Most of Britain's coal mines have closed down. There are still large reserves of coal available. Under what circumstances would you envisage businesses opening up coal mines and exploiting these resources?
2. Discuss the relevance of marginal concepts to the destruction of the rain forest.
3. How might an understanding of marginal concepts help to establish strategies to conserve as opposed to destroying natural resources-consider ONLY crude Oil?
Explanation / Answer
1)Coal minning requires sensitive and close study of the land which shall be productive enough and rich in resources and suitable for minning geographically. Business openings shall be helpful only when there is high demand compared to the suppliers to envisage a perfectly competitive market system .They also need to ensure that return from the minning is profitable or not . Government sanctioned and land feasibility of minning has to be kept in mind as the extractions and minning involves high costs .
2)Marginal resources are the additional resources from extraction , while destruction of rain forest .However the returns have to be sufficient compared to the extractions involved . For non renewable resources the decisions for extractions is even worse , however technolgies may help in efficient produce but depleting the enviornmnt makes the production even more costlier .Hence , the marginal cost needs to be kept in mind , when it becomes costlier to access production revenue generartions will be lower .Depleting the enviornment has harmful impacts on the enviorment sustainability too .
3)Crude Oil involves massive extractions and goes through variety of production process that are extremely costly . Hence the revenues have to high to ensure enough profits are generated .If the demands are not sufficient , excess reserve supplies will not be profitable .Hence the expensive exploitation needs sufficient revenues too so that the extractors do not go through losses .Therefore keeping in mind natural reserves , there has to be economically efficient extraction of oil ensuring supplies do not hamper enviornment sustainability .