9/1/2011 Class2

531000000000 barrels of oil underground
16500000000 average consumption annually
mathematical conclusion: we will use up oil in 32 years
Reality: We will never run out of gasoline
Reason:It will be too hard for us to get the remaining gasoline,and we'll turn to other kinds of resources.

man acts purposely:economics a study of scarcity

So what is scarcity?
Scarcity means people want a certain kind of resource more than it is available. Scarcity is a relative notion, having nothing to do with physical abundance or rarity. So oil can be physically abundant, but since it's so versatile that people really want to use it for better life, it is scarce. When something is scarce, it means people value it greatly.

But the fact that many people want oil doesn't mean people really love oil. If oil cannot heat the house, used as gasoline, etc, people will not want it, just like ancient people treated oil as agricultral nuisance before oil was found useful. So what we buy is not oil, but the services we can get from the oil.


People respond to incentives and should think at margin.
When the oil extraction becomes more costly than the potential profit, what will they do? They will stop extracting the oil and turn to other things.