suppose that the supply of fossil fuels like coal and petroleum will become more

Question

suppose that the supply of fossil fuels like coal and petroleum will become more and more scarce in the next fifty year. With a growing global demand for energy and the looming threat of rising global temperatures, it would seem to be a recipe for a dramatic decrease in the growth rate of economic activity. Why do many economists believe that economies can continue to grow even in the face of resource scarity? suppose that the supply of fossil fuels like coal and petroleum will become more and more scarce in the next fifty year. With a growing global demand for energy and the looming threat of rising global temperatures, it would seem to be a recipe for a dramatic decrease in the growth rate of economic activity. Why do many economists believe that economies can continue to grow even in the face of resource scarity?

Explanation / Answer

Classical economists are of the belief that there are limits to growth due to the scarcity of natural resources, but the neo classical economists were optimistic about the availabilty of natural resources. One of the reasons given by them is that the the rise in the prices of the resources causes a substitution of that resource with its alternative (abundant) resource. Man made capital can substitute for the depleting resource. Another reason given by the neo classical economists is that a rise in the price of the depleting resource leads to the increased activity of recycling it and exploration and extraction of that resource. Also, the progress of the countries, new technologies can make the usage of resource more efficient.

Above are the reasons given by the neo classical economists stating that resource scarcity will not be a bottleneck to the future economic growth.

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