Can someone please explain why the supply for renewable natural resources is perfectly inelastic and for nonrenewable resources is perfectly elastic? I would appreciate a short explanation if you nailed this concept, because I am not able to figure it out from the book.
I’m with you neagu. I can’t figure this one out either. I just remember it as being the opposite of what i think it should be.
Hi, I would first think it’s the other way round… But in fact they state it this way. Perfectly inelastic means the quantity supplied does not depend on the price (vertical curve). The cfai book claims that the quantity of renewable natural ressources (example: land) is fixed, and so the quantity supplied cannot change when the price changes. In the case of a nonrenewable ressource, they quote oil, and especially oil *reserves*. The idea is that the supplier has a certain amount of the ressource, and is willing to sell any amount at the expected present value he is going to be able to sell this quantity for. So he has a fixed idea of the price and will supply any amount (from his stock). This indeed sounds quite academic to me… (The amount of oil is really fixed, so one could argue the other way round, although reality shows stock is a big issue.) Cheers
thanx martin, i try to learn it like this but it doesn’t make to much logic to me