If the price of a barrel of oil is $100 this year and the interest rate is 10 percent, then according to the Hotelling Principle the price next year is expected to be ________ per barrel.

Question

Quizplus · Accepted Answer

The Hotelling Principle states that the price of a non-renewable resource, such as oil, will increase over time at the same rate as the interest rate. Therefore, if the interest rate is 10 percent, we can expect the price of oil to increase by 10 percent, or $10, per barrel. This means the price next year would be $110 per barrel, making choice B the correct answer.

If the Price of a Barrel of Oil Is $100