Optimization And Time

Question 1

Present value

Answer 1

Current value of a future stream of resources

Question 2

Optimal depletion rate

Answer 2

Depletion rate of a natural resource that max’s the npv of the resource

Question 3

Discount rate

Answer 3

Annual rate at which future benefits or costs are discounted relative to current. 0% of future is valued the same as today. High discount rates create an incentive to use resources quickly. Low discount rates creste a greater incentive to conserve

Question 4

Dynamic equilibrium

Answer 4

Equilibrium where future benefits and costs are considered

Question 5

Resource depletion tax

Answer 5

Tax imposed on the extraction or sale of a natural resource

Question 6

Scarcity rent

Answer 6

Payments to resource owners to keep resources out of production.

Question 7

Hotellings rule

Answer 7

Theory stating that in equilibrium, the next price(price - production cost) of a resource must rise at a rate = to the rate of interest

Question 8

Hartwick rule

Answer 8

Theory stating that resource rents( proceeds of resource sale, net of extraction costs) should be invested rather than consumed