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Mineral Resources

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**1. **Mineral Resources

**2. **Definitions of reserves Geological reserves: physical quantity in the Earth’s crust
Economic reserves: quantity of geological reserves that can be profitably extracted and refined with current extraction technologies

**3. **Change in economic reserves Extraction reduces reserves
Exploration and discovery increase reserves
Price increase increases reserves
Extraction cost reduction increases reserves
Decline in price of inputs
Technological improvement in equipment, methods

**4. **Taxonomy of mineral reserves

**5. **Optimal extraction over time Recall condition for dynamic efficiency:
find quantity in each time period t, at which WTP = MTC
Where:
MTC = MC + UC
WTP = market price for a traded commodity
Present value of UC is equal in all t
In t = 0 then, P0 = MC0 + UC0
Since UC1/(1+r)1 = UC0, UC1=(1+r)1*UC0
In t = 1 then, P 1= MC1 + UC0*(1+r)1
For any t then, P t= MCt + UC0*(1+r)t

**6. **Optimal price path For any t then, P t= MCt + UC0*(1+r)t
The initial price, P0 and UC0 need to be found to determine the optimal price over time
Determining these requires more advanced math but also some assumptions about the resource
Possible assumptions include:
Availability of a currently more expensive alternative that is either:
A renewable backstop technology
Another depletable resource
The shape of the MC curve as the remaining stock declines
The shape of the demand curve

**7. **Optimal price path Once determined, the optimal price path may change if economic conditions change. These may include changes in:
The extraction cost
Demand
Economic reserves due to new discoveries
Discovery of substitutes (note that increase in price encourages development of substitutes)

**8. **Optimal extraction path As price increases over time, the quantity demanded and therefore extracted decreases over time
The optimal extraction path is downward sloping
Note that:
the resource does not suddenly run out
There may be a final year, T after which quantity extracted will be 0.