Class Summary #2 for 9/2/11

In today's class, Professor Rizzo taught a very interesting lesson that revolved around the natural resource of oil.

He began class by explaining that back in the year 1970, there were 531 billion barrels of oil in the ground. Back then, humans we're consuming, on average, 16.5 billion barrels of oil per year.

At that rate of oil usage, many economists believes that humans would run out of oil 32 years later- in the year 2002. They calculated this year by dividing 531 billion by 16.5 billion.

Then, Prof. Rizzo went on to explain that today, in the year 2011, we have not even come close to running out of oil despite the belief that we should have run out by 2002. In fact, we have even more oil than ever before today, at 1.349 trillion barrels, with an annual usage of 30.5 billion barrels per year.

By doing the same calculation that economists did in 1970 (1.349 trillion divided by 30.5 billion), oil resources should theoretically run out in 44 years, or by 2055.

Oil barrel consumption/production
proves an underlying belief of many
economists: we will never run out of
natural resources as long as we live.

But Prof. Rizzo explains how by using economic theory, we can conclude that we will never run out of oil, or any other natural resource for that matter. The reason behind this is that in the case of oil, prices skyrocketed during the past decade.

Due to this, there was much more opportunity for oil producers to make profit off of oil barrels. So, what these producers did was search for more barrels of oil, barrels that they previously had not searched for because the cost of searching for such barrels outweighed the profit that could be made by selling the barrels.

With the increase in oil barrel prices came a boom to the job economy, as more and more people we're hired to conduct oil searches. Other people had the opportunity to develop inventions to find oil barrels, which allowed them to make money off of selling their inventions to production companies.

In class, Prof. Rizzo explained that the aforementioned example is the main reason why many economists believe that natural resources will never run out. When a resource appears to be in low quantities, prices skyrocket for the resource, which prompts producers to search harder for more of the resource so they can make significant profits.

The bottom line is that this chain of events spurs economic growth in a number of ways.

Prof. Rizzo also used the above example to refute many peoples' belief that our dependence on each other is decreasing in today's world. Economically speaking, it is pretty evident that we all rely on one another for natural resources because of the fact that when a resource seems to be dwindling, producers generate more of the resource and consumers continue to consume.

Pistachio nuts we're a major topic of discussion in class.

We also learned in class how nothing in this world is free, although it may initially seem to be. Prof. Rizzo used the example of pistachio nuts to prove his point.

He told us to pretend that he gave three students a huge bag of pistachio nuts that could fill up an entire classroom. For days on end, the three students went to eat pistachio nuts, throwing the empty shells back in the room.

After many days of eating pistachios, it became very difficult for the students to find any pistachios shells that held nuts because of the many empty shells laying all over the room.

Two of the students then suggested that the trio go to a local bar to get a cup of pistachio nuts to fulfill their pistachio nut addiction. The other student responded by saying that going to a bar and paying for pistachios was a dumb idea, considering the pistachios in the classroom we're given to them for free.

But the moral of the story is that the pistachios actually weren't free, because of the fact that a significant amount of time would have to be spent to search through all of the used shells to find a filled pistachio shell. Therefore, the time wasted searching for pistachio nuts would have been a hefty cost considering the time could have been better used in a number of ways.

The cost of paying for a cup of pistachios at a local bar may actually be worth it when considering the amount of time that would be wasted by searching through an empty-pistachio-nut-shell filled classroom for unused pistachio nuts.

Finally, Prof. Rizzo concluded the class by explaining a number of important themes that are imperative to understand in the study of Econ, such as:
-Econ is built upon the idea that man acts with a purpose. When man does something, he does it for a reason.
-One definition of economics is the study about how we all rely on each other to live.
-Another key definition is that economics is simply the study of scarcity.