How a resource should be allocated over time to maximize


1. Which one of the following statements is false?

  • Users costs should always be set to zero to maximize economic efficiency
  • Incorporation of user costs will raise current prices
  • User costs can be incorporated in a market by imposing a resource depletion tax
  • Government intervention may not be necessary to internalize user costs
  • Consideration of user costs will reduce current production

2. Which one factor below does not influence how a resource should be allocated over time to maximize economic efficiency?

  • The future marginal net benefit curve
  • The current marginal net benefit curve
  • Guaranteeing sufficient supplies for future users
  • The discount rate
  • The supply of the resource

3. Which one of the following statements is false if we increase the discount rate used to      allocate a resource?

  • Current consumption of the resource will increase
  • The resource will tend to be used up quicker
  • The price of the resource will tend to rise faster
  • The appropriate resource depletion tax will increase
  • Future supplies of the resource will decrease

4. In a two-period model, the same quantity of a resource will be used in both time periods ...

  • Whenever the discount rate is zero
  • Whenever the supply constraint is binding
  • Whenever the discount rate is set equal to the rate price is increasing
  • Whenever the discount rate is zero and the marginal net benefit curves are equal
  • Whenever Hotelling's rule applies

5. What economic theory tells us about the price of a non-renewable resource over time?

  • Pigovian rule
  • Cobb-Douglas theorem
  • Hotelling's rule
  • Coase theorem
  • Tragedy of the commons

6. Hotelling's rule states that ...

  • The net price of a resource is constant
  • The price of a resource depends on the allocation of property rights
  • The price of a resource is efficient as long as all user costs are internalized
  • The net price of a resource rises at a rate equal to the interest rate
  • The net price of a resource declines at a rate equal to the interest rate

7. Assuming Hotelling's rule applies to a resource market, which one of the following statements is false?

  • The price of the resource will rise over time
  • The current market price of the resource will include user costs
  • The interest rate will affect the production of the resource over time
  • The per unit profitability of the extracting the resource will tend to rise over time
  • Interest rates will tend to rise

8. Economic theory states that the optimal depletion rate will...

  • Decrease as the discount rate is raised
  • Always ignore benefits to future generations
  • Imply the extraction of all of a resource now as long as interest rates are positive
  • Increase as the discount rate is raised
  • Always create excessive pollution

9. Which one of the following statements is true?

  • The use of discount rates will always maximize future benefits
  • The use of discount rates becomes more problematic as longer time periods are considered
  • Discount rates should always be set to zero to maximize efficiency
  • Discount rates should be constant over time
  • High discount rates promote resource conservation

10. If we are trying to maximize economic efficiency, which one of the following statements is true?

  • Reducing current consumption to save some resources for the future may be optimal
  • Consumption rates should rise at a rate equal to the rate of interest
  • Maximizing current consumption is optimal
  • Consumption should always be divided equally among time periods
  • Consumption rates in a time period are not related to interest rates

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Macroeconomics: How a resource should be allocated over time to maximize
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