What does Hotelling’s rule imply about the change in
resource rents over time?
What does Hotelling’s rule imply about the change in
resource rents over time?
Solutions
Expert Solution
Hotellings rule implies that the percentage change in net price
per unit of time should equal the discount rate to maximize the
present value of resource capital over the extraction period
This rule also implies that the maximum hotelling rent can be
obtained over time while employing the stock resources
His rule generates basic implications about how the
availablility of non renewable resources affect the resource price
and extraction paths over time
According to him the price path of the resource will increase
over time in more realistic models.
And the only way of having a return on prescribing the resource
stock is that the net price of the resource increases over
time.
He predicts that non monotonic or declining scarcity rent paths
over time are due to inflict assumption that lead to a non concave
objective function.
A main conclusion of his study was that in equilibrium the
resource rent must increase over time at a rate equal to the rate
of interest.
Hotelling’s rule presents a very specific prediction for prices
of a nonrenewable resource. What is this prediction? Give two
reasons why we may not observe this pattern in the data and explain
why these reasons would undermine the prediction.
QUESTION
1. What does a change in the quantity demand / supply imply and
what is its difference from a change in demand / supply?
2. Consider the table below and answer the following
questions
Price of A
Quantity Demanded for A
Quantity Supplied of A
10
32
4
20
28
7
30
24
10
40
20
13
50
16
16
60
12
19
70
8
22
3. Draw the supply and demand curves
4. Why does supply curve have...
11. If “correlation does not imply causation,” what does it
imply?
12. What are some of the possible reasons for large correlations
between a pair of variables, X and Y?
17.What assumptions are required for a correlation to be a valid
description of the relation between X and Y?
When is it rational to be ignorant? What does rational
ignorance imply about the ability of politicians to enact policies
with concentrated benefits and dispersed costs?
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imply about the extraction of pitch from harmonic complexes? Be
certain to describe the pitches of “inharmonic” complexes and how
they depend on ratio of the center frequency of the complex to the
frequency separation (or modulation rate). What are “peak picking”
models? What phenomena can they explain? What problems do they
encounter?