Following Hotelling, we might expect the real price of nonrenewable resources to increase continually over time, as resource stocks are depleted. But empirical evidence for a number of nonrenewable (mineral) resources indicates that their prices over the past century have not been increasing monotonically. Instead the price paths for a number of nonrenewable resources have been “U-shaped”. Provide an explanation for what’s going on. i.e. resolve this apparent anomaly between theory and observation- why would the price of these resources be driven down instead of increasing as the theory predicts?

Following Hotelling, we might expect the real price of nonrenewable resources to increase continually over time, as resource stocks are depleted. But empirical evidence for a number of nonrenewable (mineral) resources indicates that their prices over the past century have not been increasing monotonically. Instead the price paths for a number of nonrenewable resources have been “U-shaped”. Provide an explanation for what’s going on. i.e. resolve this apparent anomaly between theory and observation- why would the price of these resources be driven down instead of increasing as the theory predicts?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter12: The Partial Equilibrium Competitive Model

Section: Chapter Questions

Problem 12.14P

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Why hasn't the depletion of nonrenewable resources happened as predicted? Do the pricing signals at this time indicate that nonrenewable resources are almost exhausted?
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