Anyone understand why the supply curve for a non-renewable resource is perfectly elastic? Also, what is the logic behind a non-renewable resource not having economic rent?作者: Londonrocks 时间: 2011-7-13 15:29
I dont have a straight forward explanation for this, but I will try.
1. "why the supply curve for a non-renewable resource is perfectly elastic?"
Perfectly Elastic supply means, you will supply all possible quantity for a given price. If price goes down or up from that value, you supply 0 quantity.
For example, you are a crude oil firm. Other things same, the price of oil that you will supply at, 6 months from now is = Current Price * (1 + RFR/100). If the price is below that, you are better off keeping your oil in the well and not supply at all.
If your price is above that value, buyers will buy it from other oil suppliers and you will be supplying 0 quantity.
So, you supply all possible quantity at 1 given price and will supply 0 quantity at any other price. Thus you get a perfectly elastic supply for your crude oil.
2. "what is the logic behind a non-renewable resource not having economic rent"
I guess, it is easier to explain it other way round. That is, why a perfectly inelastic supply source has maximum economic rent.
This time lets take example of Brad Pitt. If Brad Pitt does not act, say his next best skills are as a CFA charter holder! And as a CFA charter holder he can earn say $150,000. So, he would continue to supply his services to hollywood as long as they pay them more than $150,000. This is a case of Perfectly Inelastic Supply (continuing to supply same quantity of services irrespective of prices). And any amount he gets above $150,000 would be his economic rent.
So, I will understand it this way. When there is a perfectly INELASTIC supply, it has maximum Economic Rent. And as the supply becomes ELASTIC, its Economic Rent reduces, till it becomes 0 when supply is Perfectly Elastic.
Sorry, but this is probably the best I can do to explain. Lets wait for other inputs.
