oil price

CFA Level I
#1

oil price was 85 a barrel last year, the price is 120 a barrel this year. what’s the economic rent for each barrel of oil today? (A) 0 (B) 35 © 120 (D) no sufficient information to calculate

#2

D

#3

Oil is a non-renewable. Non-renewables have no economic rent. A?

#4

I highly doubt oil producers rent anything LOL.

#5

perfectly inelastic supply --> all income is economic rent perfectly elastic supply --> all income is opportunity cost :wink:

#6

D’Artagnan and wood1000 is wonderful

#7

See, told you my theory was correct…

#8

amberpower Wrote: ------------------------------------------------------- > See, told you my theory was correct… lol ! good mnemonic

#9

D’Artagnan Wrote: ------------------------------------------------------- > perfectly inelastic supply --> all income is > economic rent > > perfectly elastic supply --> all income is > opportunity cost > > :wink: yup, that is why lebron james makes 100x more than an econ professor @ harvard

#10

Portfolio Wrote: ------------------------------------------------------- > oil price was 85 a barrel last year, the price is > 120 a barrel this year. what’s the economic rent > for each barrel of oil today? > > (A) 0 > (B) 35 > © 120 > (D) no sufficient information to calculate D, b/c ER = price - total costs, we don’t have cost info. bonus tip: price of oil today = PV of expected benefit (price)

#11

i know it doesn’t make sense to say that oil has no economic rent, but isn’t it like that with non-renewable ressources. your answer makes sense, but what’s up with that definition that non-renewable goods have no economic rent? thanks.

#12

nonrenewable -> elastic supply (horizontal) -> opp cost 100%, rent 0% renewable -> inelastic supply (vertical) -> Opp cost 0%, rent 100% = PxQ answer= 0

#13

Portfolio, what is the answer?

#14

yella, since there is no substitute for oil, the next best thing is… oil. so the opportunity cost is 100% of the price of oil. since economic rent is the difference between the actual good and the substitute, the economic rent is zero. Thats how I reason it out. Not positive if that is the actual theory behind it though.