allocation

Question 1

potential reserves

Answer 1

can shift due to tech advances (right), exploration (right), and depletion (left)
amount potentially available depending on price
would only equal resource endowment at an infinite price

Question 2

resource endowment

Answer 2

natural occurrence of resource

total amount

Question 3

current reserves

Answer 3

can profitably be extracted

Question 4

physical exhaustion

Answer 4

no more physical quantity is available

Question 5

economic exhaustion

Answer 5

when costs of obtaining the resource exceed the market value

Question 6

conservative

Answer 6

relative to some base

use less now, use more later

Question 7

depletion

Answer 7

use more now, use less later
relative to some base
progressive change

Question 8

opportunity costs

Answer 8

MUC

Question 9

dynamic efficiency over a time horizon

Answer 9

MNBn / (1+r)^n

Question 10

MC increases because -

Answer 10

as you consume more, scarcity of it increases

Question 11

choke price

Answer 11

max WTP

when it is hit, you will have used up all of the resource

Question 12

MUC

Answer 12

area between MEC and total MC

Question 13

results of dynamic efficiency over a time horizon

Answer 13

consumption stops when MC = choke price
smooth transition to exhaustion
use up the entire resource

Question 14

consumption value

Answer 14

value gained by using it today

Question 15

asset value

Answer 15

value gained by using it later because price is higher in the future

Question 16

switch point

Answer 16

go from nonrenewable to renewable

occurs if choke price is > than MC2

Question 17

results of renewable substitute

Answer 17

MC of the substitute sets the upper list on MC of resource 1

more of the nonrenewable resource is extracted earlier because we still use up the entire resource and upper price lower

Question 18

results of nonrenewable substitute

Answer 18

rate of increase of MC is lower after the switch point
could be different grades instead of two resource
(better grade; less expensive)

Question 19

MUC decreasing

Answer 19

extracting today increases extracting in the future
only going to use some of the resource
MUC declines as MEC1 increases

Question 20

sensitivity analysis

Answer 20

decreases the discount rate

higher initial price, later prices are lower

Question 21

lower discount rate, same initial price

Answer 21

MUC increases slower and price increases slower

will result in using up before choke price

Question 22

severance tax

Answer 22

per unit tax on resource

Question 23

decrease MEC

Answer 23

lower initial price
higher later prices
shortens depletion period
- MUC is higher, MEC drops more than price drops

Question 24

increase in demand - constant choke price

Answer 24

initial price is higher

less time for depletion

Question 25

increase in demand - outward shift

Answer 25

initial higher price
less time for depletion
new choke price

Question 26

exploration

Answer 26

new resources are found and MEC is lowered
smaller and slower decline in consumption
rice in MC is less
price is lower

Question 27

tech advance

Answer 27

lowers MEC increases consumption

Question 28

environmental costs

Answer 28

rate of consumption is lower
case of substitutes
- switch to smaller substitutes earlier
- smaller cumulative amount of resource used