ABSTRACT
This chapter shows that under reasonable conditions the long-run growth paths postulated by others, even if eventually unstable, cannot be supported by the micro-behaviour of the model in the short run. It introduces the idea that the flow of resource, supplied for sale to firms by the owners of the stocks of non-renewable natural resource, was a decreasing function of their expectation of future prices of the resource stocks. The chapter explains that all other assets in the economy can be modelled as one, with the common rate of return of the interest rate. It considers a competitive asset/resource stock market, and the authors abstract from explicit extraction costs. The chapter introduces adjusting expectations of future resource price and examine the existence, uniqueness, and stability of short-run equilibria and quasi-equilibria in the resulting model. It examines the consequences for the model of allowing expectation of price change to affect actual price change directly.
