Please choose the answer that best completes this sentence. The higher the discount rate, the amount of non-renewable resources that should be consumed in the the present, and the amount of non-renewable resources that should be consumed in the future, if the goal is to maximize the net benefits generated by consumption of the non-renewable resource. Select one: O a. the lesser, the greater O b. the older, the younger OC. an equal, an equal O d. the greater, the lesser
The Correct Answer and Explanation is:
The correct answer is:
d. the greater, the lesser
Explanation
This question is rooted in resource economics, particularly in the optimal allocation of non-renewable resources over time under discounting. The discount rate reflects how much society values present consumption over future consumption. A higher discount rate implies that future benefits are valued less compared to present benefits.
When the discount rate increases, it makes present consumption relatively more valuable than future consumption. As a result, decision-makers are incentivized to extract and consume more non-renewable resources now rather than conserving them for future use. This leads to the greater use of non-renewable resources in the present.
Conversely, a higher discount rate reduces the value of future consumption, which makes conserving resources for future use less appealing. Therefore, lesser non-renewable resources are allocated for consumption in the future.
This behavior aligns with the principle of intertemporal choice, where economic agents allocate resources over time to maximize overall utility or benefit. In the context of non-renewable resources like fossil fuels or minerals, an increase in the discount rate causes a shift in consumption toward the present, potentially leading to faster depletion of the resource.
This concept is particularly important in sustainability and environmental policy. A low discount rate favors conservation and long-term planning, while a high discount rate supports immediate exploitation for short-term gains. Policymakers often debate the appropriate discount rate when evaluating long-term environmental impacts, such as climate change mitigation or biodiversity preservation.
In summary, a higher discount rate results in greater present consumption and lesser future consumption of non-renewable resources, which is accurately captured by option (d): the greater, the lesser.
