Ques - Introduce the Hotelling’s rule using a two periods’ model and explain why it is...

Ques - Introduce the Hotelling’s rule using a two periods’ model and explain why it is in general dynamically efficient to follow the Hotelling’s rule. Explain everything with complete detail.

Expert Solution

Hotelling's rules using a two-period model basically defines the net price as a function of the time period and using the economic rent in the time of fully extracting a non-renewable natural resource.
The hotelling rent is also termed as scarcity rent and it is the maximum rent obtained while clearing the stock resource.
The two-period model means the one period belongs to a present condition and another period belongs to some future certainties.
Hotelling model or hotelling rule is generally dynamically efficient because it involves a comparison of two situations on the basis of various factors.
It is a situation where the maximum rent is charged as per the productivity of the resources and to compare the two situations.
This rule is also used in the inflationary situation of the economy where the price is stability is the main factor which defines the rent theory and the interest theory in the comparison of two periods, therefore, the hotelling rule is a good theory of economics which includes all such factors which are important for this eternity of productivity and stability in the two specific periods selected by an economist.

Rahul Sunny answered 2 years ago

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