Relationship Between Thermodynamics And Economics

There has been much debate on whether there is a connection between thermodynamics and economics, but lead economists argue that thermodynamics is one of the pillars of economics. Most literature on thermodynamics has confused many people, so this article attempts to clear the misunderstandings by explaining the laws of thermodynamics and how they can be applied to economics. The laws of thermodynamics that matter to economics are only the first and second laws. The zeroth and third law are there to provide logical reasoning. The mathematics of thermodynamics is not really important to economics, instead it’s the understanding of the two laws that matter. Then the article proceeds to explain heat, work, and the first two laws of thermodynamics

Thermodynamics is the transformation of heat and work, while economics is the transformation of matter by production and consumption. As the first law of thermodynamics states no energy can be created or destroyed, the same can be implied on economics. We can have an exhaustion of deposits as matter cannot be created, and we cannot get rid of waste as matter cannot be destroyed. The same goes for the second law of thermodynamics: all real processes are irreversible thus energy such as oil can only be used once. Also, no energy transfer event will be 100% efficient since some of the energy will be given off as heat; thus, production processes cannot reach maximum efficiency. Moreover, technology has limits set by the thermodynamic maximum efficiency. These implications conclude that since economic growth requires energy it is limited by the availability of energy. With the exponential increase in our energy usage, oil production has almost reached its peak and we will be switching everything to solar power soon. Solar energy can continue to help our economy grow, but one day it will also be exhausted to the global exponential growth of energy consumption. The second law of thermodynamics help us understand the constraints of our economic

It applies the laws of thermodynamics by which energy cannot be created or destroyed and that the entropy is always increasing. Solar energy that comes from the sun enters our Earth, an open system, will supply it to the economic system of production and consumption between consumers and firms. In turn, the consumers and firms will also produce wastes that will either be recycled or emitted off Earth as thermal energy. Economists still have to take into account the limits of our energy, so production processes must maximize their energy efficiency. We learned in class that the thermal efficiency of the heat engine cannot be 100%, meaning all the heat that was input into the system will not be transformed into all work as some heat will be given off into a heat sink. As the Kelvin-Planck Statement says, it is impossible for any device that operates in a cycle to receive heat from a single reservoir and produce a net amount of work. Relating this to economics, there will be a limit to how much efficiency can increase in a production process, and inevitably there will have to be waste produced by the