Under perfect competition, the price of a depletable resource whose cost of extraction is not changing must rise at
A)the same rate as the increase in GDP.
B)the same rate as the increase in consumer prices.
C)the same rate as the rate of interest.
D)a rate higher than the increase in the rate of interest.

Question

Quizplus · Accepted Answer

Under perfect competition, the price of a depletable resource whose cost of extraction is not changing must rise at the same rate as the rate of interest. This is because the resource owners are indifferent between selling the resource now or keeping it in the ground, earning the interest rate as the opportunity cost. This principle is known as the Hotelling Rule.

Under Perfect Competition, the Price of a Depletable Resource Whose