The quantity of land and other renewable natural resources is fixed and their supply is perfectly inelastic. On the other hand, the flow supply of a nonrenewable natural resource (e.g., oil) is perfectly elastic.
I just read this in my SG, but it still seems counter intuitive. Can anyone explain the logic behind this?
This is SUPPLY, not demand. I struggle to wrap my head around it personally, but I have the facts memorized. It does seem backwards.
Say you own a field. In this field you grow grass. Every year the field produces X amount of grass. At the end of the year you can sell that grass off for someone else who will cut, bail, and sell off as hay the grass in your field. If you don’t sell the grass it will die over the winter but come back next year. (assume you can’t bail it yourself and stockpile it) There’s no reason to let the grass die because you get nothing out of that (you could have sold the grass to someone else for ) You always prefer getting for the grass rather than letting it die. (Why not?) So every year you sell X amount of grass, no matter what the market price is because you prefer getting something rather than nothing. So the supply of grass is perfectly inelastic. Schweser does a pretty good job of explaining why the supply of a non-renewable resource is elastic.
directly from cfai mock 2 answers: “The quantity of land and other renewable natural resources is fixed and their supply is perfectly inelastic. On the other hand, the flow supply of a nonrenewable natural resource (e.g., oil) is perfectly elastic.” This still makes no sense to me (even after chasinggoats’s grass example)… I will just remember it i guess.