Reference no: EM133355590

Questions

1. If we take the world's known reserves of oil, and divide this total quantity by average annual oil consumption, we obtain the "reserves-to-use ratio," the number of years that remain before exhaustion of our oil resources. Explain why this ratio paints a misleading picture of oil scarcity.

2. The Hotelling Rule states that marginal user cost rises at the rate of interest. Explain the intuition behind this result.

3. If interest rates were to fall unexpectedly, what would you expect to happen to the price of a nonrenewable resource like oil? What would happen to the rate of price increases going forward? Explain your reasoning.

4. Oil and endangered species are both natural resources with high economic value. Yet a private landowner in the United States might react very differently to the discovery of an oil well on her property than she would to the discovery of an endangered species population. Explain this difference, using economic concepts.

5. Economist Robert Solow has said that "the monopolist is the conservationist's friend." Explain this in the context of nonrenewable resource extraction.