Question

for an exhaustible resource a. the dynamically efficient allocation is consistent with equalizing the marginal benefits of extracting the resource to the marginal costs of extraction over time b. all market failures we discussed resulted in exhaustible resources being extracted faster than is socially optimal c. the ending price, after extraction is equal, is the minimum of something called a choke price and the price of a substitute d. the choke price can never be infinite if mc of extraction are positive

Answer 1

For an exhaustible resource the dynamically efficient allocation is consistent with equalizing the marginal benefits of extracting the resource to the marginal costs of extraction over time.

What is an allocation that is dynamically effective?

The optimal allocation, in terms of the dynamic efficiency criterion, is the one that maximizes the present value of the net benefit. The sum of the present values in the two periods serves as the net benefit's present value for both time periods.

What are resources that are exhausted?

Exhaustible resources are scarce and quickly used up. They are often referred to as non-renewable resources. In contrast to renewable resources like sunlight, which cannot run out, fossil fuels like coal, petroleum, oil, and natural gas as well as minerals like iron, copper, and others are exceedingly limited in nature.

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