In the early 197 0s the Club of Rome, extrapolating from the rates of resource use at the time, predicted that the supply of natural resources (especially oil) would be used up within a few decades. Subsequent events appear to have proven them wrong.

a. What is predicted to happen to the price of oil (and other natural resources) as population and per capita incomes rise?

b. Given your answer to part (a), what is the likely response by firms and consumers who use such resources?

c. Explain why resource exhaustion should, through the workings of the price system, lead to technological developments that reduce the use of the resource.