Mass-Energy Based Economic Models

In this semitutorial paper, economic models based on fundamental principles of conservation of mass and energy are developed. These models consider labor as a cost rather than a flow as in classical input-output analysis. This minor shift in concept makes it possible to include technical economies of scale in production and transportation as an additive nonlinearity to the cost equation. These economies of scale are shown to be of central concern in evaluating the tradeoffs between production "efficiency" and environmental and social costs incurred by excessive spatial concentration and regional specialization of production and consumption processes. Well-known concepts in engineering are used to develop mass-energy economic models of production systems that have all the basic characteristics of classical economic input-output models and more. The theories and concepts are illustrated by example.