Pricing & Resource Exhaustion
Setting prices of goods is a very important
activity in an economy. The relative prices of goods determine which goods
and how much is consumed, which dictates which resources are used.
In our economy, the intersection of the supply and
demand curve determines the free market price of a good.
The bald Supply and Demand statement hides the reality
that many components contribute to the production cost of a good which
affects how much a producer is willing to supply at a given price. What
if the producers don't know the full costs?
Are there any costs that are overlooked in our free market
economy that are important and worth finding a way to include? Yes, we
do not price in the ultimate consumption of limited resources.
If we priced resource exhaustion into today's supply and
demand curves, it will trim GDP growth near-term periods but allow GDP
growth in future periods.
For those who doubt that we overlook the ultimate exhaustion
of resources in our pricing model, please consider some past mistakes that
we caught barely in time - buffaloes, beavers, carrier pigeons, soil in
the Dust Bowl. Their prices were set so low that we over-consumed what was
available.
Let's not wait so long on other resources. Right now oil and
water need immediate action.
Mensa Bulletin Aug. 2004
