a) Explain why a reduction in the resource constraint is analogous to an increase in the discount rate.
b) (Static Analysis) Use the TWO-PERIOD model to illustrate how an unregulated market will allocate resource extraction when the marginal extraction costs (MC) falls in both periods. Show and explain why firms will ‘bring forward’ production.
c) Suppose firms perceive a decrease in demand for their product now and in the future. Will this speed up extraction?