The fact that new methods to extract oil are developed as oil prices increase suggests
A) nothing; changes in technology occur regardless of market prices.
B) that invention does respond to economic signals and is endogenous.
C) that methods of production do not change in response to factor- price changes.
D) that invention is exogenous.
E) that oil has many close substitutes.

Question

Quizplus · Accepted Answer

The fact that new methods to extract oil are developed as oil prices increase suggests that invention responds to economic signals and is endogenous. Higher prices create an economic incentive for firms to find new and more efficient ways to extract oil, leading to the development of new methods. This is an example of how changes in technology can be endogenous to market prices.

The Fact That New Methods to Extract Oil Are Developed