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Inefficiencies in Mineral Markets

Inefficiencies in Mineral Markets. Monday, March 13, 2006. Dynamic Efficiency. Over time Quantities extracted decrease Prices increase Rate of extraction depends upon: Demand Costs of extraction Discount rate Known quantity of resources.

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Inefficiencies in Mineral Markets

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  1. Inefficiencies in Mineral Markets Monday, March 13, 2006

  2. Dynamic Efficiency • Over time • Quantities extracted decrease • Prices increase • Rate of extraction depends upon: • Demand • Costs of extraction • Discount rate • Known quantity of resources

  3. Over time, we have observed increases in quantities of minerals used AND decreases in most mineral prices. Does this mean that minerals are not being used efficiently?

  4. Changes affecting extraction rates: • Unanticipated increases in demand • Changes in technology that have reduced extraction costs over time • Exploration and discovery of new reserves • Until marginal cost of exploration and discovery is just equal to marginal rent (MUC)

  5. But extraction rates may still be too fast and prices too low • External costs associated with mining, so MEC is lower than true social MEC • Pollution • Destruction of habitat

  6. S=MPC + MSC P* q* $ S=MPC only pm D qm Quantity of coal mined

  7. Responses to external costs • Regulations controlling how mining is done and requiring cleanup after mining is completed • Federal Surface Mining Control and Reclamation Act • Bonds required to guarantee reclamation

  8. MPC $ MSC MPC with allowance Pe Pm D Qe Qm Quantity of coal mined Other inefficiencies • Policy • Depletion allowances • Permits for mining on public land

  9. How does recycling affect extraction rates? • Costs of recycling • Collection costs • Separation costs • Transport costs • Processing costs • External costs • Costs of using virgin materials • Extraction, user, external

  10. $ MC virgin MC recycled P D Qv Qv + r Aluminum Cans virgin recycled

  11. $ MC recycled MC virgin P D Qr Qr + v Aluminum Cans recycled virgin

  12. $ MC recycled MC virgin P D Qr Qr + v Aluminum Cans recycled virgin

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