If the price of a barrel of oil is $100 this year and the interest rate is 10 per cent, then, according to the Hotelling Principle, the price next year is expected to be _______ per barrel.
A) $90
B) $100
C) $110
D) None of the above is correct.

Question

Quizplus · Accepted Answer

According to the Hotelling Principle, the price of a non-renewable resource like oil is expected to increase at the rate of interest. Therefore, if the price is $100 this year and the interest rate is 10%, the price next year is expected to be $100 + ($100 * 10%) = $110.

If the Price of a Barrel of Oil Is $100