The fact that new methods to extract oil are developed as oil prices increase suggests
A)that methods of production do not change in response to factor- price changes.
B)that invention is exogenous.
C)nothing; changes in technology occur regardless of market prices.
D)that oil has many close substitutes.
E)that invention does respond to economic signals and is endogenous.

Question

Quizplus · Accepted Answer

The fact that new methods to extract oil are developed as oil prices increase suggests that invention responds to economic signals and is endogenous. As oil prices increase, firms have a greater incentive to develop new and more efficient methods of oil extraction, which leads to innovation and technological progress. This is consistent with the view that invention is endogenous and responsive to economic incentives.

The Fact That New Methods to Extract Oil Are Developed