Production Possibility Frontier

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Production Possibility Frontier GDP
ASSUMPTIONS Given Quantity of Labor (education
Skills) Capital (machines, tools, factories) Land
(natural resources) Fully Employed Technology
Constant
GDP Gross Domestic Product Dollar value of all
goods services produced in one year
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Measuring Growth Rates
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GDP Population x GDP per capita
GrowthGDP Growth" Pop GrowthGDP per
capita
5 3
2
Economic Growth, Population Growth, per capita
Income Growth
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Traditional Econ View of Growth
5 3 2

• GDP Growth gt Pop Growth ? ? Std Living

Requires
? Productivity of Population (ie, labor)
Requires
?
? Capital ? Technical Improvements
Traditional Economics no limits
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Traditional View contd
Unlimited Growth
? A ? M ? J
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Ecological Econ View of Growth
5 3 2
GDP Growth gt Pop Growth ? ? Std Living
Requires
? Productivity of Population (ie, labor)
Add as requirement
Requires
?

• Energy
• Natural Resources
• Waste

Limited Amt Using up

• Capital
• Technical
• Improvements

?
Absorptive Capacity of Environment
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Connection between Human Economic Activity
Environment
GDP Growth gt Pop Growth ? ? Std Living
Requires
? Productivity of Population (ie, labor)
Add as requirement
Requires
?

• Energy
• Natural Resources
• Waste

Limited Amt Using up

• Capital
• Technical
• Improvements

?
Absorptive Capacity of Environment
Takes us to Limits to Growth Model
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MITs Limits to Growth Model
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Structure of Model Flow-Chart representation of
Mathematical Model
STOCKS dark shaded boxes Population Cultivated
land Pollution Industrial Capital Non-Renewable
Resources
STOCKS w/ LIMITED SUPPLY Cultivated Land
Non-Renewable Resources
VARIABLES Inserted ? Estimates or Historical
From other boxes or loops
Fertility , life expectancy, Desired
food/person, efficiency of capital , Investment
rate , Average lifetime of capital
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Based on
1) EXPONENTIAL GROWTH Population Industrial
Output 2) FIXED RESOURCES Cultivated land
non-renewable resources 3) FEEDBACK LOOPS
Positive ? reinforce Negative ? self-limiting
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If POS gt NEG ? Exponential Growth
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If POS gt NEG ? Exponential Growth
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• Negative Loop
• Industrial Output
• Uses up Nonrenewable resources
• Lesser quality
• Lower grades
• More effort
• ? Cost
• Offsets Output growth

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Plug in numbers for variables and Run Model
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1 Standard World Model

• Assumptions
• No change
• physical
• Economic
• Social Relationships
• Exponential Growth in
• Population
• Food
• Industrial Output

?
? Resources
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? Resources

• Force
• Precipitous Collapse
• ? Industrial Output
• (Massive Unemployment)
• ? Food Production
• ? Death Rate
• ? Population

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2 Piecemeal Approaches

• Recycling, Efficient Irrigation, New energy
  Sources
• Change Assumptions
• Double Resources (run model)
• Still Collapses
• but not caused by depletion of Resources!
• Caused by Excessive Pollution
• created by Faster Industrialization
• permitted by ? Resources

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2 Piecemeal Approaches

• Recycling, Efficient Irrigation, New energy
  Sources
• Change Assumptions
• Double Resources Eliminate Pollution (run
  model)
• Still Collapses
• ? Population vs. Available Food
• Conclusion remove one limit
• ? bump up against another

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3 Avoid Overshoot Collapse

• Only if limit growth of what now ? exponentially
• Population
• Industrial Output
• Will happen
• A) Conscious Policy ? self-restraint
• B) Collision with natural limits

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Criticisms of Limits to Growth

• Julian Simon, The Ultimate Resource
• the natural world allows, and the developed
  world promotes through the marketplace, responses
  to human needs and shortages, in such a manner
  that one backward step leads to 1.001 steps
  forward, or thereabouts. Thats enough to keep us
  headed in a life-sustaining direction. (cont
  next slide)

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Julian Simon, The Ultimate Resource

• The main fuel to speed our progress is our stock
  of knowledge, and the brake is our lack of
  imagination. The ultimate resource is people
  skilled, spirited and hopeful people who will
  exert their wills and imaginations for their own
  benefit, and so, inevitably, for the benefit of
  us all.

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Lesser, Dodds, Zerbe, Environmental Economics
Policy

• there is little reason to fear the catastrophic
  collapse of societies postulated by the authors
  of The Limits to Growth. The substitution of
  competitive markets for rigidly regulated ones
  has provided new incentives to explore and
  develop energy and mineral resources. Reserves of
  many important commodities have been increased,
  through new discoveries or greater incentives to
  recycle products that were formerly treated as
  wastes.

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Limits to growth being criticized for not
recognizing

• Human ingenuity ? ? technology
• Adaptability

The end